And in its short life, FreeLoader has already spawned another generation of start-up-cash-out-start-again entrepreneurs.
Take Jeff Hosley. While he may speak cynically about the sale of FreeLoader, it hasn't stopped him from applying what he learned there to Torso, the company he cofounded the day after exiting FreeLoader. Hosley freely concedes, for example, spending half his time early on schmoozing with venture capitalists, reporters, and industry players. Some, he admits, returned his calls only because "I called them 10 times." One response came from Wayfarer Communications, a push-technology company in Mountain View, Calif. After four or five phone calls, Hosley got through to the vice-president of business development and strategy, Bob Patterson. Nine months after its founding, Torso was scooped up by Wayfarer.
One of his ex-partners at Torso, former FreeLoader staffer Jamie Hamilton, boasts of never having worked longer than 11 months at any place he didn't start himself. Like his peers, he is markedly unsentimental about the sale of companies he's helped create. Bouncing from start-up to start-up comes naturally to this group.
As for Pincus and Paul, having pocketed roughly $4.5 million each, the fellows who founded FreeLoader are fairly certain about what they want from their new ventures. They'd like to create products, they say, that everyone (even, says Pincus, his mother) will use. Having tasted what that would feel like, Pincus wants more. "People knew FreeLoader," he says, recounting what he regards as the high point of the venture. "I've been on a plane and seen someone using FreeLoader next to me."
His sentiments are not unique. Entrepreneurs have always wanted that kick. Still, the question remains: are these guys genuine entrepreneurs or just lucky masters of spin? One beneficiary of FreeLoader's success--investment banker Seth Ferguson, whose company profited from FreeLoader's sale--sees it this way: "Anyone smart enough to figure out that there's an opportunity, to start a company, and to sell it fast--I think that's very entrepreneurial."
Stephanie Gruner is a staff writer at Inc.
Selling Baby
Ever the students, entrepreneurs like Pincus and Paul have learned from watching the company builders who came before them. They've seen what can happen. "Too many people forget to sell their businesses," says Barbara Todd, cofounder of Good Catalog Co., a $23-million cataloger. "Owning a business is a whole lot of fun. But you can stay there too long."
When they started, in 1992, Todd and her partners assumed that they would position the business to be sold in five to seven years, taking advantage of the industry's rapid consolidation. The company doesn't own any property, because the acquirer, notes Todd, might not want to stay in Portland, Oreg.
"I tell people that when the hors d'oeuvre tray passes, you always take the hors d'oeuvre because the tray could be empty when it comes around again," asserts Nathan Schulhof, CEO of Audio Highway, in Cupertino, Calif. Since 1978 the 48-year-old has started and cashed out of a half-dozen computer-related companies. As a result, he says, he now plans how to cash out before he even chooses office space.
His younger brother, David, 32, already on his third business, is more sentimental. "I am very attached to my company. It is like my child. It isn't easy to sell and walk away." Nevertheless, he's managed to hawk two children already, his first when he was practically a child himself, at age 19. In the fall of 1996, he founded his third company, Make It So Inc., an Internet direct-marketing service, and he's already forged relationships with potential acquirers. "My company is my product, and my customer is the company that's going to buy it in the end," he says.
Certainly not every entrepreneur in Silicon Valley is looking for a quick exit. "Very rarely do you hear about people starting a company because they want to cash out," says Howard Aldrich, an adjunct professor of management at the University of North Carolina at Chapel Hill. "They have an idea or a vision. You have to build so many commitments and relationships to move a company forward. You have to be sincere."
You also have to be realistic.
Take Aldrich's son, Steven, who sold his on-line insurance business to Intuit for $10 million nine months after its launch. "If Schwab or Fidelity or Intuit had entered the market, my bet is, we would have needed to get out of the way," reflects Steven Aldrich, now the director of Intuit's insurance-services group at the company's Alexandria, Va., facility.
"There is no room for niche players in the on-line consumer world. You either dominate the market or you partner with someone who does."
The Start-Up Game
"Some people play tennis. Some people play golf. I do start-ups," says Scott McLoughlin, who served as the program manager at FreeLoader and now owns the Adrenaline Group, the appropriately named software engineering and consulting company he cofounded with four other ex-FreeLoaders. "Time doesn't mean anything to me. It's just start-up after start-up." Echoes FreeLoader's first hire and the cofounder of Torso, Jamie Hamilton: "You're part of an elite corps of people doing something on the cutting edge. What would I do that's as much fun? Go play golf? Work is more exciting."
Part of what makes it exciting, of course, is the ever-present possibility of hitting the jackpot (as Hamilton did when he recently sold Torso)--albeit a remote possibility for most. "The probability of holding on to stock options that can do more than paper your walls is pretty small," admits McLoughlin. Then again, nobody's pledging his or her life to it. "The entity might not be around in 12 months," says McLoughlin, who currently is a consultant to nine start-ups. "It's fantastic."
