A Truck Full of Money (21 page)

The past summer, the eve of his fiftieth birthday, had seemed at times like one of Paul's parties greatly elongated—a bacchanal to celebrate his new beginning with Blade and to mark if not to mourn the end of his fifth decade. It had been interrupted now and then by periods of somber clarity—for instance, in July an email time-stamped 6:24 
A.M.
and labeled “success”: “There is a part of this that feels awful. I keep getting invited to meetings. People want something. And they all project themselves onto me and give me unsolicited advice. I also feel fake. I know that I get too much credit for KAYAK by many people…This stupid ‘success' right now is an elephant that follows me around. I can't let it block my view or change who I am.” But it was as if he would surface and look around for a moment and the next thing you knew, he was trying to buy a lighthouse.

Right around the time when Brenda called, he resolved to take on hypomania again. First he went to see his latest therapist. She had lasted longer than most. She had a medical degree and knew the psychoactive pharmacopeia. Paul came out with a prescription for a fairly new antipsychotic called Saphris, supposed to curb mania in people with bipolar disorder. In the afternoon Paul headed for his psychiatrist's office, in a quiet, antiquated wing of Mass General. Old photographs of psychiatrists hung on the walls of the waiting area. Paul was sitting under their gaze, bent over his smartphone, working on email with both thumbs, when his doctor emerged, a tall man in a dark suit. “Paul,” he said.

“Just a minute,” Paul replied without looking up. He kept on typing, thumbs flying.

The doctor stood over him. “Paul,” he said again.

Paul looked up. “Oh, I didn't see you there.”

His psychiatrist thought this little moment significant, Paul distracted and forgetting where he was—a classic symptom of hypomania. “He's very worried about my hypomania,” Paul said afterward, striding away toward the parking garage and his next Blade meeting. “He thought my bidding on the lighthouse was bad. He said, ‘If we don't fix this, you're going to have a heart attack.' What else did he worry about? I can't remember.”

He did remember that his psychiatrist wanted him to try the Saphris, the drug his therapist had prescribed. A few nights later, he took his first dose. The next morning, he felt as if the Lilliputians had pinioned him again. He went out to visit an old friend, who told him he seemed depressed. This reminded him of what that other friend had said years before at Interleaf when Paul was taking lithium, but this time, instead of quitting the drug, he tried to smile, tried to “fake energy.” He halved the dose that night, but the next day he felt so weak he couldn't help a friend move some furniture. He couldn't even lift a dining room chair.

He decided to take the drug only on weekends, beginning the next Friday night. On Saturday morning he told Brenda, “I feel insanely groggy.” It was a lovely day in Arlington, a day in early September. Brenda said, “Why don't we jump in the pool?” Paul felt somewhat revived afterward but still muted when, in the early evening, he drove south with Brenda along the roads to Hull, roads he'd known since childhood—past the Ford dealership where he and Danny once talked a foolish young salesman into letting them test-drive a brand-new Mustang; past the many police stations and courthouses that Paul had once known all too well; past the sign announcing the town of Hingham—where Paul could smell the salt in the air and the life in the water, where tension seeped away—and finally onto the narrow Hull peninsula. Paul thought the town was like a ship poking its bow out into Boston Harbor.

Hull was the summers he wanted never to end. It was a place where he felt he belonged. “It's seen as the scratchy poor kids who are barely literate,” he'd say. It was the kind of seaside spot where you could find a restaurant selling fried Oreo cookies.

He took Brenda to a fancier place, the Red Parrot. It had a second-story outdoor deck. He used to bring his father here when the old man was sinking into forgetfulness. He and Brenda chose a table overlooking Nantasket Beach. She had never been the kind of girl he had ogled with his buddies back in teenage days. She looked demure and wholesome.

As Paul sat there, he felt his energy come surging back, that lovely, scary feeling coursing through his arms. It must be that the drug was wearing off. He'd escaped the hold of that pill he had taken last night. The sensations were as always wonderful, though wonderful in part because they felt dangerous, as if he were standing at the edge of a towering promontory, the master of the world below. For a moment he felt tempted, but he had new reasons to keep this thing in check. He ordered a martini, the only drug handy. He drank it, thinking,
It'll knock me down a little bit.
He was looking at Brenda and taking in the deep shadows over the water, the scents of frying food and salt and beach grass and
Rosa rugosa
. He felt safe with Brenda.

Driving home that night, he decided he'd keep taking his new medication at least for a while.

When Schwenk realized that Brenda and Paul were a couple again, he felt relieved of his dire visions—Blade in flames, he and Paul and Billo in handcuffs. Schwenk told Billo as much: With Brenda back, Paul's party plans for Blade were bound to quiet down.

“Schwenk knows me pretty well from the outside,” Paul once said. “He can describe my behaviors pretty well. But he doesn't understand why they happen. I don't think Billo does either.”

This was true enough. At various times over the years, Schwenk had heard Paul excuse himself by saying he had to see his therapist, and he remembered hearing Paul mention that he was “bipolar.” But Schwenk had never inquired about Paul's diagnosis, and Paul had never talked to him about it. Nor had Billo, though he had guessed that Paul must suffer from some sort of intermittent psychological problem. This was one of the things they chose not to know about one another, and not knowing was easily accomplished, given how infrequently they met outside of work.

When it came to working together, though, they knew one another well. They didn't have to waste any time discussing their roles in building Blade. Generally, Paul figured, he and Billo would be in charge of strategy, and Schwenk would “make it all real.” That is, Schwenk would handle the logistics, all the unforeseen problems and, when necessary and possible, Paul.

They took up residence in a borrowed conference room downtown, not far from the Boston waterfront and the site of the former Chinese restaurant that was slowly turning into Blade. Now and then a seagull perched on the lamppost outside the windows of their temporary office. A table filled most of the room. They posed for a photo there one day: Paul looking up from a blueprint of the Blade office and grinning; Billo bending low over his folded hands and wearing a faint smile, as if interrupted in thought; and the neatly mustached Schwenk, dressed in a T-shirt but looking formal anyway, glancing toward the window as if perhaps calculating the cost of something Paul had just proposed.

They spent many months in their temporary place. Landmark days came early: the landlord's proposed lease agreement, for instance. When it arrived, Paul glanced at the thick document, made a face, then handed it to Schwenk. “Can you read
every
line of this?”

“Sure,” said Schwenk with a shrug.

Paul pronounced it another “big moment” when he opened the first Blade bank account. He arrived at their borrowed office carrying the paperwork in what looked like a pizza box. “There should be five hundred grand in that account right now,” he said, handing it to Schwenk.

Schwenk took to calling their triumvirate “the three amigos”—with a touch of irony, as if thinking of their differences. Among them, Billo seemed most comfortable with money. He had a lot of it in the bank just now, but he liked the things you could do with it, both spending it and giving it away. Schwenk didn't ever want to be cold and eating squirrels again. He intended to conserve his Kayak millions, and he wanted to make more. As for Paul, half the time he felt he had too much already. He found it exciting to muse on what would happen if he lost it all: “I would want to reenter society as an Uber driver, and that would pay my rent, and I'd start from there. I'd have a very nice car, I'd keep it incredibly clean. It would have iPhone chargers.”

Paul said to his partners once, by way of explaining their one clear collective motive for undertaking Blade: “None of us is going to read romance novels on the beach.” For himself, he told them, starting companies was like a drug. “I want to keep doing it.” Mainly, he thought, he wanted to create teams again, but this time for other people's start-ups. “I don't want to start companies myself, but I totally want to help other people start companies. So in ten years if I'm asked if Blade was a success, I would base it on how many happy CEOs there are of companies we helped start.”

Paul put up a million dollars and owned half the company, Billo and Schwenk each put up five hundred thousand for a quarter share. This was their skin in the game. Now it was time to think about selling parts of Blade to outside investors.

Blade would do business on the Internet, where all three of them had worked almost since the advent of e-commerce. Blade companies would be “big bets,” Paul said. “No restaurant menus, crap like that.” In a good case, several of Blade's start-ups would show early results. Then Blade could easily raise more capital and go on starting companies. Paul usually imagined best cases. At moments his enthusiasm infected even Billo. At a meeting with a lawyer in their borrowed office, Billo spoke of “billion-dollar hits.” He said, “I'll be bummed if there's not one in four years.”

The lawyer nodded. “You guys are doing big-game hunting.”

They'd recruit young monster coders to create the start-ups and young rock stars to manage them. Maybe some would build the Blade founders' ideas, maybe some would come to Blade with ideas of their own. Unlike most incubators, theirs would eschew the “spray and pray” approach and do “seed and feed,” guiding start-ups to their first large dose of capital, their “Series A.” That is, Blade wouldn't just give a little help and money to a plethora of start-ups, hoping a few would flourish. Rather, they would choose two or three a year, house and nurture the hatchling enterprises for at least six months, and help them get their first substantial financing. In return, Blade would take between 20 and 50 percent of the new companies' shares. And finally, Blade would “kick them out.” Paul meant that they'd be asked to find their own offices, but he preferred the harsher phrase. Talk of kicking people out sounded like a promise to investors that the three amigos would be tough and businesslike.

At one point Paul gave his pitch to a very wealthy Bostonian who had expressed an interest in the amigos' new venture, and the man said, “No business plan? No spreadsheet?”

Paul said, “Nope,” and afterward remarked, “I was a little arrogant maybe, but it was fun to see a billionaire squirm.”

The amigos couldn't know what businesses they were going to hatch until they started hatching them. Their plan for making money was vague of necessity. When describing Blade to potential investors and sometimes even to advisers, Paul countered that vagueness with hyperbole, speaking as if all bets on Blade's success would be guaranteed.

Blade companies wouldn't just be big bets. They would bring the titans of the Internet to their knees: “We'll do an Amazon killer. Probably first a Fidelity one and later a PayPal one.”

Recruiting only A-plus people for Blade—that would be no problem. One time, speaking privately, he confessed that he dreamed of lunching with the directors of “the top ten companies in Boston” and telling them, “I will find your best people and take them from you. The reason I'm putting you on notice is not for you to protect them, because I will find them and I will get them. I'm putting you on notice so you can begin to find their replacements.”

Most of what they pondered that summer and fall was Blade's financing. First, how much should they try to raise? Paul arranged dozens of meetings in the borrowed conference room and restaurants, soliciting advice from lawyers and investment bankers and principals of other incubators. The counsel they received ranged wildly, from five million to a hundred million. Eventually the amigos settled on twenty million—enough, they figured, to start three companies a year for four or five years.

Where to get the twenty million? They considered several possibilities and settled on venture capital firms, a traditional source of financing for young companies, a source Paul understood, VC money having financed Kayak. Finding VCs who were willing to invest in Blade? That would be no problem either. “When the VCs see we're open, confident, they'll be desperate to get in,” Paul said.

The dot-com bust had halved the number of venture firms. There were only about 475 of them operating now, but they still had large effects. Collectively over the past decade, VC firms had deployed about $25 billion and fostered the growth of companies worth something like $3.5 trillion. Practices varied, but in general the business worked this way: The people managing money for pension funds and university endowments and a small number of very wealthy families invest a small percentage of their holdings in a venture fund, with a total worth of anywhere from two hundred million to a billion. The VC firm takes 2 percent of the fund as a yearly management fee and invests the rest in a variety of start-ups and young companies. The VC takes 20 to 30 percent of the profits, if profits materialize.

The business can be lucrative, but it is risky, at bottom a form of gambling, no matter how carefully and cleverly performed. To thrive, a VC has to do a lot better than double the money it invests. If a given fund merely doubles in value over ten years—the usual lifetime of a fund—the yearly return to the limited partners will have amounted to only 7 percent, far too little to satisfy most limited partners, given that an investment in a VC's fund is expensive and illiquid. Limited partners expect about five times their money back over ten years. To get that return, a VC has to make at least a couple of very good bets. As a general rule, about 70 percent of start-ups fail, and 20 percent don't even come close to becoming “5X wins.” To make up for the inevitable disappointments, to get that 5X average return, a firm has to look for “home runs”—that is, for individual companies that will turn into wins of at least 20X.

One way around this dismal math is for the VC to invest early on in a company that “exits,” by way of a sale or public offering, for a great deal of money, say a billion dollars or more. In the past decade only a small fraction of all VCs had made early investments in even one such company. General Catalyst in Cambridge had joined the club when Kayak was sold. The return on GC's initial investment had been spectacular: In nine years, $5 million had turned into about $450 million. The firm had some other success stories to tell, but Kayak was a brand known to millions. Moreover, GC wasn't only Kayak's first investor but had helped to invent the company. These days when GC went looking for new money from limited partners, the pitch began, “We helped start Kayak.”

Paul's old boss and friend Larry Bohn was still a partner at General Catalyst. In February, when Paul had just started dreaming up Blade, Larry had told him across a restaurant table that GC was going to be one of Blade's principal investors. The way Larry put it was: “You have to bring us in.”

“Why do I have to?” said Paul.

“You just have to,” said Larry.

“We don't owe GC anything,” said Paul. “You owe
us
.”

“I agree,” said Larry. “But you have to bring us in.”

There was never much question that Paul would do that, but he wanted at least one other investor. He had three in mind. All belonged to what he called “tier one,” and all were more prestigious than GC—“ten times GC,” Paul said. This mattered. In the VC business, success bred success. Tier ones tended to get the best “deal flow.” That is, a lot of the best entrepreneurs with the best ideas came to tier ones first to ask for help and money. Partnership with one or more tier ones would probably improve Blade's deal flow, too. And Paul had ready access to three of those “A-plus” firms. Two, Accel and Sequoia, had made early and very profitable investments in Kayak, and Paul had long-standing friendships with two of the principals at the third, Greylock. All those firms had headquarters in Silicon Valley, and in the interest of due diligence, Paul led Billo and Schwenk on a scouting trip out there—a trip to Mecca, as Paul put it. They ran their traps at all three firms. Reid Hoffman, the founder of LinkedIn and a principal at Greylock, summarized their aims: “You want to found great consumer companies in Boston and don't want to found them yourselves.” He added, “My first advice would be, go and found another one yourselves.” But Hoffman called the idea “perfectly coherent.” All the West Coast firms seemed interested, Accel especially.

Over the next two months, the amigos settled on the terms they'd ask for. They would sell 30 percent of Blade, to some combination of VCs. The price would be $20 million. If they got that deal, Blade, at its inception, would thus have a total valuation of about $66 million—or $68 million, if you counted the amigos' own investment. By any standard these terms were rich for a company with no tangible assets.

Moreover, the amigos felt they couldn't grant VCs what they were bound to want the most. The great payoffs in venture capital came from making early, prescient Series A investments—investments like General Catalyst's in Kayak, a few million yielding hundreds of millions and sometimes even more. For their $20 million, the VCs would want above all the preferential right to invest in the Blade companies they thought most promising. But to grant such rights would put Blade's whole strategy at risk. When the time came to look for Series A investments, Blade's hatchlings would in effect be captives of the VCs funding Blade. On those grounds alone, the most talented entrepreneurs, the ones the amigos wanted, might well avoid Blade. So the most the amigos felt they could offer VCs was early introductions to Blade companies.

Sometimes when talking to advisers, Paul spoke as if several VCs had already agreed to those terms. Paul Graham, one of the founders of Y Combinator, the country's best-known incubator, was openly astonished at this news: VCs would give Blade all those millions just to
meet
its young entrepreneurs?