Venture Capital: Dot-com founders got crash course in business

Shae Hong was one quarter shy of completing his course
work at the University of Washington when he decided to
quit school to create an Internet start-up.

By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER

It was early 1999, and the Internet rocket ship was still screaming toward the sky.

So Hong — who at the time was 22 —
took a rough business plan, gathered a
few friends and formed a company called
ePods that brought the Internet
experience to a hand-held device about
the size of an Etch A Sketch. Now,
more than three years later– after
burning through $25 million and 150
employees — ePods is gone and Hong is
back in school. But the 25-year-old also
has another idea percolating, selling
coffee makers, blenders, toaster ovens
and other small appliances that he’s
developing under the Amana brand.

During the Internet euphoria of the late 1990s, several young, enterprising
entrepreneurs — looking to make a mark in the business world — dropped their
accounting and marketing classes for real-life lessons at Internet start-ups.

Although many of those companies failed, some of the entrepreneurs who took
the leap say they have no regrets. Others, such as Hong, are returning to school
and starting new businesses.

Hong said it wasn’t a difficult decision to leave college in 1999 because he grew
up in an entrepreneurial family.

"There is always a risk, but it was well worth it," said Hong, a Tacoma native who
plans to finish his eight credits at the UW this year. "Even now, looking back, it
was probably one of the best decisions I’ve made so far. The experience, the
people I met, the mentoring I received by being able to work with CEOs of Fortune
500 companies, those business dealings really jump-started my career."

Michelle Long, who co-founded World2Market.com in 1999, doesn’t regret leaving
the UW business school to join the Internet parade, either. She does, however,
regret that her company grew too fast, lost investors’ money and didn’t fulfill its
mission of using the Internet to benefit artisans in developing countries.

Even though World2Market.com closed last year, Long didn’t slow down. The
30-year-old started a nonprofit in Van Zandt that brings together farms,
businesses, government agencies and environmental groups. Some of the venture
investors who lost money on World2Market even decided to back the nonprofit.

"We started (World2Market), so we had a lot of emotional ties to it," said Long.
"Of course you feel bad and there are some regrets. But one experience leads to
the next."

Andy Liu also took the plunge, dropping out of the University of Pennsylvania’s
Wharton School in 2000 to devote time to Seattle-based NetConversions.

But a few months later, the technology market started to unravel, and
NetConversions — which sells Web-site analysis software to companies such as
Sur La Table, the Seattle kitchenware store — hit hard times. Liu, forgoing a
salary, laid off most of his employees and moved the company back to
Philadelphia where he re-enrolled in school. Attempting to juggle the day-to-day
business with the rigors of schoolwork was not easy, says the 26-year-old
entrepreneur. To maximize his time, Liu selected courses that directly applied to
real world business challenges he was facing and used days off to meet clients.

"Overall, the MBA program allowed me to learn the theories and gain the
analytical lenses to run a company," said Liu, who graduated in May and moved
the 10-member company back to Seattle two weeks ago. "However, the real
training of running a business came from actually running a start-up. There is no
replacement for experience."

Dan Kaltenbach, 32, agrees. He turned down a bid to the UW business school in
July 1999 to take a job as vice president of operations at Seattle-based
ServiceStop.com. Kaltenbach said he couldn’t let the opportunity pass.

"I thought the experience of running a company and seeing if we could get it off
the ground would be an MBA in itself and it was," said Kaltenbach, who stayed at
the online errand service until its demise last July. "I worked six to seven days a
week, 12- to 14-hour days. I made a lot of mistakes, had to fix a lot of things,
learned a lot the hard way and made some great decisions that ended up being
real positive for us. … It was fun."

Still, after shutting down the company last summer, Kaltenbach was left without a
job. He spent a few months windsurfing in Oregon, clearing his head before
returning to Seattle to find work. With little luck, Kaltenbach reapplied to the UW
in March and was accepted into the MBA program beginning in September.

"Coming out of the MBA program, having run a company, I think I am poised to do
some exciting stuff in the entrepreneurial world," Kaltenbach said. "And that’s
definitely where I am going to focus."

Dan Poston, executive director of the UW’s MBA program, said the school saw
its highest rate of refusals in 1999 and 2000 as applicants chased Internet
dreams.

"Most people said they were making too much money and having too much fun
with the dot-com stuff," said Poston. "Some of those same people were out of
work by spring 2001."

Now, individuals are clamoring to get into the program and the number refusing
their acceptance letters has declined to an all-time low.

The students who left school during the Internet gold rush say they are wiser for
it. Hong said his new distribution company, Cela, is easier to run because of
lessons learned from the failure of ePods.

"It is funny, everything that we didn’t have at ePods we have here," said Hong,
who will begin selling the small appliances later this year. "We have a proven
market, a proven brand, which is what we were trying to build with ePods, and we
have a business model that is very profitable. Having those three things makes
this a lot easier than trying to create those things."

But starting a company with the same lofty goal as ePods may be a challenge,
he admits. After all, like many Internet start-ups of the late 1990s, ePods was on
the initial-public-offering track. It had financing from large corporate partners. And
Hong frequently met with business leaders from Fortune 500 companies who were
interested in the technology.

How does a young entrepreneur bounce back from that high?

"It is kind of disappointing because you had all that stimulation so early," Hong
admits. "But I think my priorities have changed. For example, one of my goals is
to see this company turn its first profit. That was never a near-sighted goal at
ePods because it wasn’t possible."

P-I reporter John Cook can be reached at 206-448-8075 or
[email protected]. For more information on Seattle-area start-ups or
venture capital firms, visit http://www.seattlepi.com/venture.

http://seattlepi.nwsource.com/venture/78258_vc12.shtml