Creating a Web Company without Doing the Dirty Work
These high-powered execs are nurturing startups with a hybrid VC firm/incubator
How'd you like to launch an Internet company without having to find an office, hire a staff, or even buy paper clips? If that sounds good to you, send eCompanies your business plan. eCompanies is a new hybrid venture-capital firm and business incubator founded by Jake Winebaum, former head of Walt Disney's Web companies and Sky Dayton, founder of Internet service provider EarthLink. Its first fund closed last week after raising $130 million from 10 major investors.
Most VCs give their proteges plenty of grooming along with cash to make sure they live up to their potential. eCompanies takes that concept even further. Entrepreneurs get office space in an eCompanies building in Santa Monica, Calif., where 23 experts in finance, recruiting, technology, business development, and marketing help nurse their fledgling ideas.
"The concept is to take an idea and turn it into a company in 90 to 180 days with a management team, a CEO in place, a product in market with customers," Dayton says. "We're addressing a need in the market right now where there's a glut of ideas, and there's a glut of capital chasing those ideas, but there's not enough people that can actually execute and manage these businesses."
The trade-off for this deluxe treatment? Expect to give eCompanies at least half the equity in your budding company, especially if you come with little more than a brilliant idea, says Andrew Greenebaum, eCompanies' chief financial officer. And that's just in the first round of financing.
You can also expect the fund's investors to be actively involved in your project at some stage. That's because they all see strategic business interests in the companies they back, unlike the passive institutional investors in most VC funds, which are only looking for a financial return.
The participants in eCompanies' first fund include: Disney, EarthLink, Times Mirror, Silicon Valley venture-capital firm Accel Partners, telecom giant Sprint, buyout
firm Kohlberg, Kravis & Roberts, financial-services company SunAmerica, Soros Fund Management, and investment banks Credit Suisse First Boston and Goldman Sachs. They all have equal stakes, Winebaum says.
"Our partners in the venture fund are there to be
involved in our companies in the later stages," Winebaum says. "For example, Accel Partners and Soros love to make big mezzanine-round investments in companies. Times Mirror, Disney, EarthLink, Sprint are interested in partnering with Internet companies for distribution and content. Firms like CS First Boston and Goldman Sachs obviously take companies public."
Entrepreneurs don't have to join the incubator to get
funding if they already have a good team and don't need such close supervision. In fact, the first two companies to get eCompanies money the fund will announce the names in the coming weeks won't move into the incubator.
So what kinds of Internet businesses is eCompanies looking for? Its strategy will be different from that of many VC firms, which are increasingly interested in software and telecommunications: "We're focusing on business-to-business and consumer-oriented E-commerce, definitely not infrastructure," says Winebaum.
The thought of giving up so much equity so early on in the life of a company may make some young entrepreneurs a little queasy. Dayton, 27, dismisses that idea, saying he wishes he'd had so much support when he founded EarthLink. "For the lucky few, it's the entrepreneur's dream," he insists. He may have a point. After all, when you sell your company for $100 million, 10% isn't all that bad.
By Stefani Eads in New York