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Where Net Startups Go To Be Born


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Where Net Startups Go to Be Born

eCompanies blazes into action with a richly funded incubator

It's nearly lunch time at the sparsely-furnished eighth-floor office of eCompanies, a three-month-old startup founded by Internet heavyweights Jake Winebaum and Sky Dayton. This space in Santa Monica, with large holes in the ceiling that expose concrete beams and air-conditioning ducts, is temporary. New offices are under construction 10 blocks away. Dayton, the 28-year-old founder of Internet service provider EarthLink Network Inc., is killing time with one of his many toys, a remote-controlled model car that he pilots across the office floor, over his sandaled foot, and headlong into an office wall. Dayton cracks up, but the car survives.

The speedy little car was a birthday gift from two founders of eHobbies, a Web venture that on Sept. 1 became the first startup to be hatched at the Internet industry's latest incubator, eCompanies. Announced in June as Winebaum was leaving his job as head of Internet businesses for Walt Disney Co., eCompanies is blazing onto the scene at a pace that looks breathtaking, even by Internet time.

Over lunch at Sushi Roku, a short walk from the office, the Internet's latest "angels" are bubbling with ideas for bringing goods and services to mouse-clicking consumers and businesses. The company is now getting as many as 300 proposals by E-mail every day but only three have already received a go-ahead--one from Winebaum's eight-year-old daughter. She's not getting equity but, Dayton says, "she's going to get taken care of very well."

If all goes according to plan, a lot of people will be taken care of. In just 60 days, the two partners have put together both an incubator to nurture eight Internet startups a year and a $130 million venture fund to finance the companies when they're ready to leave the nest. The incubator, owned by Dayton and Winebaum with a small stake from EarthLink and family and friends, already has 22 employees, including a chief financial officer and experts in strategy, Web design, and marketing.

Investors in the fund, which will underwrite both eCompanies' offspring and such ventures as eHobbies that are already beyond the pampering stage, include Disney, EarthLink, Times Mirror, SunAmerica, Goldman Sachs, CS First Boston, Accel Partners, Soros Fund Management, and Kohlberg Kravis Roberts. "Independent of Jake or Sky's Internet expertise, what mattered was the scope and value of their Rolodexes," says Jon P. Goodman, a University of Southern California professor and executive director of Egg Company Squared, the school's high-tech incubator responsible for Women.com Networks, NetZero, and Verix Software.UNKNOWNS. While the framework seems to mimic idealab!, the Pasadena (Calif.)-based incubator of entrepreneur Bill Gross, there's a big difference. "Sky and Jake want to leverage off their investor base--all are potential customers or partners," says Rick L. Smith, managing director at SunAmerica Ventures. "We picked investors for more than their money,"says Winebaum. "We picked them for strategic reasons."

But Winebaum and Dayton are virtual unknowns when it comes to venture capital. "They're both very successful individuals, but I don't know if they know our business very well," says Frank M. Creer, managing director of Zone Ventures, a Los Angeles venture-capital affiliate of Silicon Valley's Draper Fisher Jurvetson. "They haven't proven they can pick and choose."

Winebaum and Dayton met three years ago at an Internet roundtable sponsored by the Los Angeles Times. They discovered that each was an avid snowboarder, and the following January they headed for Whistler Resort in British Columbia for the first of many snowboarding trips. Killing time on the ski lifts, they'd talk about companies they wanted to start one day. They came close to partnering Disney and EarthLink in a venture code-named Cornice. Secret documents on the project referred to the pair by their snowboarding nicknames: "Sparky" (Dayton) and "Flipper" (Winebaum). Over dinner in May, Jake began talking about what to do after Disney. "All of a sudden, in the span of a Couple of bites, it was like we were already in business," Winebaum says.

Winebaum and Dayton are still a bit giddy. But now comes the hard part: picking winners that will impress their army of brand-name investors.By Larry Armstrong and Ron Grover in Santa Monica, Calif.Return to top


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