Tangled Webs

    There & Back Again: Part I
Issue 7.1
Mar 13, 2002



Begging Indulgence


Long-time readers frequently remind me that I do not publish as often as I used to. Fortunately, these people seem to be expressing disappointment rather than relief. The simple explanation is that after founding Vanguard, an e-commerce start-up, a few years ago I was left with very little time for writing. With Vanguard's successful acquisition by Digital Garage last December, I hope to start writing more.

This edition of Tangled Webs and the one that will follow shortly will be a bit unusual. There will be no big issues covered, no perceptions challenged, no conspiracies postulated, and no conclusions drawn. They will also be unapologetically personal. Over the next two issues, I would like to tell Vanguard's story. A quick and dirty look at the life and near-death of one Internet start-up.



Prometheus


In September of 1999, I'd been designing software for a number of years and had become thoroughly dissatisfied with the e-business and web-development tools available on the market. Like every other entrepreneur in history, I knew a better way.

I started Vanguard with about $100,000 of my savings, a lot of strong opinions about how a company should be run, and a notebook full of design diagrams. I then began calling the people I wanted to work with. I explained my ideas and goals and asked if they would like to come work for me at a third of their current salaries. Most of them said yes.

At the time, venture capital was still an oddity in Japan, so we funded ourselves. The original three-person team began taking contract development work and set up shop in an inconvenient, laughably small office that was on the top floor of a building that swayed violently from side to side on windy days.

We loved that office.

Our high margins on our contract work enabled us to channel about half our energies into developing the product that would eventually be called Mojo. Mojo represented a new approach to developing Internet software in general and e-commerce software in particular. In April 2000, we received a small amount of angel investment that let us move into a bigger office and focus more of our time on Mojo, which we actively began promoting as a development tool based on workflow rather than traditional software development techniques.

Granted, hundreds of other start-ups were making the same claims about their products. Just like all of the other companies, we knew that we were different from all the other companies. And just like all the other companies, we knew that our product would be the one to deliver on the promises, and that customers would prefer our technology to their own. Unlike all the other start-ups, however, we turned out to be right.



Icarus


By February 2001, Vanguard had grown to 16 people, and the company was red hot. We had brought Mojo to market, and had secured distribution through Toshiba, Exodus and a number of other firms. These distribution agreements were not the meaningless "strategic alliances" so prevalent throughout the dot-com boom. Our distributors were actively selling Mojo, providing frontline support, and each had a number of customer sites deployed.

At this point, Vanguard had several high-profile Mojo clients; including one of the biggest e-commerce sites in Japan. Projects that had originally been scheduled for nine months were being completed in four using Mojo. As we neared the end of our fiscal year, we had over a million dollars in software licensing revenues, and that figure that was growing steadily. And most unbelievably for a software startup, we were profitable.

In short, Vanguard was every VC's dream. We began to look for our first substantial round of financing with high hopes, and some of the best known VC firms from both Asia and the US were contacting us directly asking to invest. To allow me to focus on running to company, we retained a well-respected investment bank to handle the details of the funding. What everyone assumed would be a quick funding round was off to a great start.

Three months later the funding round collapsed completely. The series of events that led to the collapse was complex, and even now I don't feel I completely understand it. After three months of negotiation, the terms of the deal had been finalized and we went to the VCs office to sign the contract. In a two minute meeting the VC curtly informed us that they had changed their mind, would not be investing, and to please be sure to stay in touch.

The representative of our investment bank was as shocked as I was. After the meeting, he turned to me and said "Well, I guess we need to figure out what to do now." Unfortunately, we should have figured that out several months earlier. In retrospect, there was no single event, not even the bursting of the US bubble in March of 2001, that caused the collapse of our funding. It was a series of many small mistakes made by a number of people, including myself, who should have known better.

We now had to start the fund-raising process again from the beginning. A month later, our investment bank began restructuring and closed their Japan office.

Things got considerably harder at Vanguard from this point.

Continued



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© Copyright 2002, Tim Romero, t3@t3.org
This article first appeared in the January 30th edition of The Japan Times.
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