Naveen Jain, founder of InfoSpace, is a charismatic leader who has been able to persuade talented people to join his growing company. But now, his critics allege that Jain lured key personnel to his company with false promises.
The late-1990s mania for equity in start-ups led to a trail of lawsuits and allegations for InfoSpace and its charismatic founder, Naveen Jain
In early 2000 InfoSpace was riding the dot-com tsunami. Having gone public a little more than a year earlier, the company had since seen its stock price soar into the triple digits, giving the whole enterprise a market capitalization of more than $20 billion. Naveen Jain, the company's founder, broadcast its sense of boundless optimism that spring when he sought to hire Arun Sarin as his CEO. Sarin wasn't just another dot-com poseur in a black designer T-shirt. He was the number two man at Vodafone AirTouch; 20,000 people reported to him.
But that hardly kept Jain from buttonholing Sarin five minutes before Sarin was to address a roomful of investors, analysts, and journalists on the subject of Vodafone's Internet strategy. "Naveen, now's not a good time," said Sarin. An hour later, as Sarin came off the stage, Jain was right there. "I want to talk to you," he told Sarin.
Jain badgered Sarin until he agreed to fill the CEO spot at InfoSpace. Landing a big name like Sarin was really nothing new for Jain. He was a man with an inveterate swagger. "I think most people think of me as an arrogant asshole, and that's the perception I want. It says, 'Don't mess with me or you'll get crushed,' " Jain says.
That's what the ever voluble Jain, all five feet six of him, told Upside two years ago as he was busy assuring anyone who would listen that InfoSpace would become the first company ever to achieve a stock-market capitalization of $1 trillion.
InfoSpace, which is based in Bellevue, Wash., would become such a colossus by selling content and services for high-traffic Web sites and Internet-enabled devices. Its applications would allow its customers to deliver consumer and commercial services, such as online phone directories, maps, games, and stock quotes. By April 2000, when Jain reeled in Sarin, InfoSpace was on its way. It had forged relationships with more than 1,500 Internet portal sites and 60 content providers. It had deals with more than 20 wireless carriers. Noting that soon there would be more than a billion cell phones and non-PC devices worldwide, Jain justified InfoSpace's massive promise in an interview with eCompany Now this way: "The [wireless] carriers will pay InfoSpace $1 to $3 per month for each subscriber. You can do the math. That's a shitload of money."
In looking back on the dot-com crash, it's easy to see that, like most bubbles, the Internet one was filled with ample quantities of hot air -- and that CEOs like Naveen Jain contributed their fair share. What powered InfoSpace was the rampant charisma of its founder, a man who fancied himself as his company's "chief strategist." Speaking to eCompany Now in December 2000, Jain observed, "I believe willpower can get you through anything."
It certainly got Jain, who had emigrated from his native India in 1979, to this country. And it got him to Microsoft in 1989, where in the next seven years he rose to be a group manager of Microsoft MSN.
"Aggressive" and "dynamic" is how Allyson Rodgers, an analyst with Wells Fargo Van Kasper, describes Jain. And those personal qualities, she adds, rub off on those around him. "People inside the company are absolutely dedicated to him. He's always there, always in the hallways," Rodgers says. Indeed, Jain is the kind of wired, ever-in-touch leader who thinks nothing of putting in 20-hour workdays. And he is likely one of the few men in the Western world ever to go on vacation with his family and be so bored that he racked up a $1,000 phone bill.
Jain's charisma and energy, meanwhile, happened to dovetail with another phenomenon of the late 1990s -- the mania for equity. Stock options had become the strange and bloated currency of the dot-com realm, turning many financial neophytes into true believers. At InfoSpace, equity was a powerful recruiting tool. At its peak InfoSpace stock levitated at $138.50 a share, making InfoSpace options very valuable indeed.
"Don't mess with me or you'll get crushed" was the image that InfoSpace founder Naveen Jain wanted to project, he told Upside magazine.
And Jain was the prime beneficiary. At one point he owned as much as 47% of InfoSpace's stock. But he has been accused of using the stock not so much as a reward -- something to be spread around -- but as bait. That, at least, is what a number of lawsuits filed in recent years against either InfoSpace or InfoSpace and Jain together allege. The plaintiffs in those suits claim that they were taken in by a classic bait-and-switch scheme, contending that Jain made lavish promises of equity to lure key personnel to InfoSpace. The plaintiffs charge that once Jain had availed himself of their expertise and industry contacts, he fired them or broke off business relationships with them, leaving them empty-handed.
Despite repeated attempts by Inc . to get Jain's and InfoSpace's side of the story, Jain declined to be interviewed for this article -- as did the InfoSpace board members. An InfoSpace spokesperson did reply that the company's lawyers had advised against any public comment on past or pending litigation, other than saying it was InfoSpace's policy to defend itself vigorously against such lawsuits.
Even many of the financial analysts -- theoretically neutral observers -- who cover the company declined to be interviewed. And past and present plaintiffs, shunning publicity or bound by their legal settlements from talking to the press, also declined to be interviewed.
Thus the reporting for this story is based largely on various legal documents, including the sworn depositions of Jain and of plaintiffs who have filed suits against InfoSpace or InfoSpace and Jain together.
Mary Shea, an Oakland, Calif., lawyer specializing in employment litigation, including options litigation, says that charismatic leaders are not uncommon in the Internet world. She says that in the Internet economy there is a faction of "overzealous companies" and "true believers who made employment offers they couldn't back up." The result was that many employees "trusted these often very charismatic leaders" whose zeal outstripped -- and even supplanted -- their business acumen. Shea speculates that in the three California counties that form the heart of Silicon Valley and the Internet economy -- Santa Clara, San Francisco, and San Mateo -- there are at least 100 options-related lawsuits pending, and that more are on the way.
