Founders at Work.pdf

Joe Kraus 65
we’re working on. He gets very excited about it and we get the whole group
together and he says that he wants to join the company. We think, “If he joins,
we are golden, because he’s huge, he’s an author.” It’s funny to say now, but we
felt that way.
He didn’t end up joining, but he did introduce us to his bosses at InfoWorld
(where he wrote a column), Amanda Hixson and Stuart Alsop. InfoWorld was
interested in the search stuff we were doing so they said, “We’ll give you a
$100,000 contract if you can index our archives and make them available on the
Web.” They said that, if we did a good job, they’d introduce us to their parent
company, IDG.
So we did a good job and they introduced us to IDG and we attended a
board meeting where we presented what we had done. They were talking about
investing and one of the people on the IDG board was a guy named Steve Coit,
who was a partner at Charles River Ventures. Charles River started getting
interested in investing, but they wanted a West Coast partner and they introduced
us to Geoff Yang.
Geoff didn’t know what to do with us. In fact, many of the VCs we met with
didn’t know what to do with us at all. They were very excited through the course
of the demo until they got to the first question, which was “How do you make
money?” Especially given that search had never made money for VCs before.
Verity, PLS, Open Text—these had never been big and profitable businesses.
We were saying, “We think advertising is interesting, and if not, we kind of
hoped you would help us figure that out.” And the conversations usually went
very poorly from there.
But it was Geoff’s introduction to Vinod Khosla, who ultimately funded the
company along with Geoff, that really made the difference. Vinod interrupted
the demo and said, “Can your technology scale? Can it search a big database?”
And we said, “That’s an interesting question. Nobody’s asked us before.” We
liked the fact that he didn’t ask us the “how do you make money?” question. We
answered honestly, “We don’t know because we can’t afford a hard drive that’s
big enough to test.” In a kind of Jerry Maguire “you had me at ‘hello’” moment,
he takes out his cell phone, calls his assistant and says, “I’m meeting with Joe
Kraus and Graham Spencer of Architext and I want you to buy them a 10-gig
hard drive.” Which at the time cost like $9,000. And we were forever indebted
to him.
As it turned out, yes, it did scale. We figured out how to make it scale, and
we worked and worked and worked and ultimately put together a $3 million
financing with Kleiner Perkins and Geoff Yang’s firm, which was called IVP at
the time.
Livingston: So you went from your families’ $15,000 to a $100,000 contract to
a $3 million VC financing?
Kraus: That’s right. Because there wasn’t a lot of angel money around at that
time—at least that I knew of or had access to.
Livingston: Did the VCs let you keep your original stock?