After a month of negotiations, Pincus and Paul agreed to sell FreeLoader to Individual under the terms of a very grown-up deal. Pincus and Paul say (and Lentz confirms) that their personal share of the total $38-million sale price was $8.5 million: a third in stock guaranteed at $18.50 a share, the rest in floating stock. On top of that, if they stuck around for three years, they would each get a million-dollar bonus. "Thirty-eight million dollars is a lot of money for a company that doesn't have any revenues," reflects former FreeLoader director of content Jeff Hosley. "You have to spin a really good tale for that."
The deal meant that FreeLoader's investors, who owned 45% of the company, saw their money grow more than fivefold in less than five months. Employees who owned 11% of the company--some of whom had only been around a couple of months--rejoiced. Indeed, the money had come to the young founders so quickly that they didn't know what to do with it. Shortly after rising to millionaire status, Pincus listed everything that he wanted to buy. The shopping list included a "big-ass" TV, a new couch, and a leather interior for his sport utility vehicle, which displays three "I'm a FreeLoader" bumper stickers plastered on the back. Total cost: $18,000.
You'll get it right next time
Starting companies isn't much different from playing a game of cards. Sometimes you win; sometimes you lose. But you get better every time you play the game. "Taking risks is rewarded, even if you have an utter failure," says Paul. "In this world, going through the experience of failure is valuable."
By most standards, Paul and Pincus's experience with failure would hardly be classified as such. Yet a few weeks after the pair sold FreeLoader, Individual's board effectively pushed Amram out as CEO, apparently unconvinced of the soundness of his acquisition strategy. (He remained on Individual's board until February 1998.) News of Amram's departure punctured the stock, which fell to $6 a share, a far cry from its $16.50 price on the day Individual sealed the deal with FreeLoader. Pincus and Paul watched helplessly as the value of their shares dropped 60%. Individual installed a new CEO within two months. Soon after, the word went out: Individual's future no longer held a place for FreeLoader. "We decided we needed to focus on business that was core to our strategy, and FreeLoader didn't fit in," explains Lentz.
But Pincus and Paul weren't interested in buying FreeLoader back. "In a business where three months is a year," assesses Pincus, "our technology was getting stale and we hadn't been investing in our brand." Individual had owned the company for about eight months. That was more than two years in Internet time. Buying back--even at a greatly reduced price--and rescuing the company that they had just sold for $38 million was not an appealing option. "Almost everything in the Internet world is timing," explains Paul. "When we started out, there was one competitor. By the time we were done, there were dozens of them." Two of those new market entrants were Microsoft and Netscape, both of which were incorporating off-line browsers in their technology. "If we hadn't been acquired, we would have become much more focused on getting bundled with those browsers," adds Paul.
Who knew Pincus and Paul's timing would prove so unlucky? Not only did Amram depart soon after championing their purchase, but a federal-securities class-action lawsuit against Individual followed. Filed in November 1996, it alleges that Individual's prospectus failed to disclose a rift that the plaintiffs claim existed between founder Amram and Individual's board of directors at the time of its IPO in March 1996. Individual won't comment on the court action except to say through its lawyer that a motion to dismiss has been filed and is pending.
Pincus and Paul spent FreeLoader's twilight days in San Francisco, having ditched the nation's capital for Silicon Valley four months after FreeLoader's sale, taking most of their employees with them. The crew continued working for Individual out west, even as it became clear that the mother company under its new president had lost interest. Finally, last spring, Individual shut FreeLoader down.
Ultimately, things got so bad for Pincus and Paul that they threatened to file their own suit, claiming that since Individual shut down FreeLoader, they shouldn't have to stick around three years to collect a million each. They never filed a suit, but last October, Individual paid them each $672,500, according to a report filed with the Securities and Exchange Commission.
Today if you try to visit freeloader.com, you'll land at the site of its former arch rival, PointCast, which paid next to nothing to make that happen. "That was the worst blow of all," says Pincus, standing on the balcony of the $600,000-plus home he bought in San Francisco's Cole Valley, a stone's throw from Paul's equally pricey abode.
Start up, cash out, repeat
Following FreeLoader's death, Pincus kept busy by camping, going to music festivals, and taking acting classes. "I had too much time on my hands," he concedes. He also met regularly with Paul to brainstorm about new business ideas.
Just a few months later, in September 1997, Pincus was back in business. With the help of two programmers/partners, he launched a software company in Redwood City, Calif., called Replicase Inc. Having already hired 15 employees, he says he spends most of his time "handling administrative crap," mapping out his business strategy, and, of course, networking. "So pleased" was SoftBank's Lax with his last deal with Pincus that the venture firm invested $2.5 million in Replicase. FreeLoader is already a distant memory. Reflecting on its demise, Pincus says, "It was a bummer, but it wasn't the end of the world."
Paul is also back in action. His new company, San Francisco-based Bright Light Technologies, is marketing a technology that he hopes will "end spam [junk E-mail] as we know it." With a couple of contractors and 12 new hires punching out code, Paul is busy coaxing Internet service providers and Fortune 500 companies to sign up for his service. He's also hammering out a business plan and talking to venture capitalists.
