True Finance

This is the story of one startup -- the money part of the story. A startup needs money -- other people's money, and lots of it. And those other people, also known as venture capitalists, invariably demand something in return for their money: a portion of the eventual profits, a share of corporate control. This part of the startup story -- the gritty, inside, financial part -- has gone largely untold.

In a new book, "High Stakes, No Prisoners," Charles H. Ferguson chronicles the life cycle of Vermeer Technologies Inc. -- from the summer of 1993, when he "got the beginnings of a very cool, very big idea," to January 1996, when Microsoft bought the company for an estimated $130 million. During that time, Ferguson helped create FrontPage, a tool for designing Web pages. (Four years after its launch, FrontPage remains the premier software tool of its kind, with more than 2 million users and a market share of roughly 70%.) He also met a lot of venture capitalists, and he learned how to play the games that VCs play.

The story so far: While Ferguson has never started a company before, he has done a lot of other things. He's written a major work of policy analysis, "Computer Wars: How the West Can Win in a Post-IBM World" (Times Books, 1993). He's testified before Congress and consulted to the White House. He's worked with such companies as Apple Computer, Motorola, and Xerox. And now he thinks that he's spotted a wide-open opportunity: "to develop a single, standardized software product that would allow anyone and everyone to create and operate their own online service." The next step: finding the money to finance his dream.

Andy Marcuvitz is heavyset. he wears badly fitting suits. He has no discernible personality, sense of humor, or compassion. All of which are ideal traits for a venture capitalist. During 18 months of extremely intense interaction, we never had a personal conversation, I never heard him make a joke, and he rarely smiled. Indeed, a smile from Marcuvitz is not a good sign. In arguments he's relentless: His voice remains even, he never loses his temper, and he can dig in for hours. If I had known when I started Vermeer that Marcuvitz was going to be one of the most important people in my life, I would have seriously reconsidered the whole thing. And yet, he was good for me, and, in a slightly twisted way, I respect him a great deal.

I first met Marcuvitz in August 1994, when we agreed to have dinner at Harvest, an informally elegant restaurant near Harvard Square in Cambridge, Massachusetts. Vermeer was starting to look real. To call our operation "organized" would have been an overstatement, but the core technical team was in place, and work was under way on the product architecture, a demo, a business plan, and a set of financial projections. We had hired headhunters, market-research consultants, an accountant, and lawyers. We had incorporation documents, employment contracts, nondisclosure agreements, and a stock-option plan. Since only one guy was drawing a salary, I thought I could manage our burn rate for a while, but I was feeling a growing sense of urgency.

So when Andy Schulert -- who had been at DEC and Apollo Computer, and who was now our server-team leader -- called to say that a former boss of his who had become a big VC wanted to meet me, I agreed. First, though, I grilled Andy S. to make sure that he hadn't revealed anything about our plans. I was already paranoid -- in some ways overly so, in other ways not enough.

Marcuvitz and I spent the first part of dinner on introductions -- who we were, what we'd done. He was in his forties, the number-two guy at Matrix Partners, one of the most prominent VC firms on the East Coast. Marcuvitz was extremely smart and technically deep. He had a master's degree in computer science from Harvard, and he had been one of the founders of Apollo, as well as its first vice president of R&D. Of all the VCs I was to meet over the next few months, Marcuvitz was one of the few who understood the Internet.

Andy M., as we came to call him, described his background in his typically neutral, unemotional fashion. When it was my turn, I was at my most obnoxious. I listed my glittering credentials: PhD in political science from MIT, policy-research work, White House connections, congressional testimony, consulting to Fortune 500 clients, powerful friends, an important book. I told him that Vermeer would be a paradigm-shifting company, that he'd have to sign a nondisclosure agreement to hear about our plans, and that, in any case, we wouldn't talk to anyone until we were ready. I told him that I was already lining up private investors as an alternative to VCs, that I planned to drive a hard bargain, and that I would never let VCs gain control of the company.