Founders at Work.pdf

180 Founders at Work
Then we went to raise more money. The Davises had committed to $3 million
that was going to be in tranches. We had $1.5 million, but the last $1.5 million was
contingent on us closing a deal for a consumer electronics partner . . .
Livingston: . . . who would manufacture it?
Perlman: If we could get the deal through Sony, they would manufacture
WebTV. Sony’s a big company. It takes a lot to get through the system there, and
we just could not get the deal through the system. As hard as we tried—they
were almost ready to go—we couldn’t get a commitment. So we went back to
the Davises, and they got very nervous. They don’t know about technology, and
they said, “Well, we’re only going to put in a million and a half.”
Well, now we had hired all these people—I think we had over 30 people
then. Though we were quite frugal, it still was a high cash burn. We were just
about out of money. So I mortgaged my house, liquidated all my assets, and
brought in all the cash I could to help it. (Although I did make some good
money from General Magic and Catapult, it wasn’t until after that point. Both
companies did their IPOs after that. There was a holding period for General
Magic, and so on.)
We didn’t tell the employees that we were running low, because we didn’t
want people to be in a panic. We were going to tell them if we were really hitting
a wall, but I could keep the company going a little bit longer.
Then we started going and talking to other investors and VCs, much sooner
than we thought we were going to have to.
Livingston: Because you were expecting the second tranche?
Perlman: Yes. These days I look at it, and I think, “Jeez, even $3 million is a
fairly modest amount for the scope of thing that we were trying to do.”
I remember we spoke to one semiconductor company that we got very far
along the road with that made a processor. When it came down to literally days
before we signed the investment document, they added in a section that said
we would be obliged to use only them as the provider for all of our silicon. In
other words, they set it up so that our backs were against the wall, and they
were getting us locked in. We knew that, if we were locked into one provider
for silicon, we would have no way to negotiate prices. That would drive up the
cost of the unit, so we couldn’t do that. We even tried to explain to them that,
“You guys are investing in a company. You don’t want that to happen.” But they
felt very clever about this strategy and taking these wet-behind-the-ears entrepreneurs.
So there was another 2 months wasted. We were watching the bank account
dwindle. Then we started speaking to VCs, and we talked to a whole bunch of
different ones. We spoke to Paul Allen at Vulcan and a couple of other companies.
We talked to Sony and Philips about possibly investing, but they weren’t in
a position to invest. We found that nobody was willing to make that first step. In
fact, I think a lot of them were sort of like vultures waiting for us to fail, and
then pick up the pieces—because they saw the value of what we were doing—
for a bargain.