The Ad Network

13 December 2008

One unusually dry Seattle afternoon in February 2008, outside a modern office building downtown, two guys jumped up and down with joy.

Dylan yelled, “I can’t believe we actually have them as our attorneys; they only take two startups each year!” As a stocky 5'5" fellow, he wore a suit cut to resemble an Armani rather than the slim draped look of Joseph Abboud’s. Other times, he was more likely to be dressed in a track suit and flip-flops. His heritage was a mix. Depending upon circumstances, he claimed to be Italian, Spanish, Latino, Filipino or a descendant of one of those. Everything became an opportunity for an ‘in.’

Rhett responded, “It’s happening!” While the same manner of dress applied, the cut of his being similar to a major label’s was mere coincidence. His upbringing likely included cultural awareness of the saying, “The raised nail gets hammered.”

“It’s real, baby!”

*   *   *

Meanwhile across town at Louisa’s Cafe, Andy made introductions between Pamela and Daniel. The cafe was standard issue Seattle: order at the counter, seat yourself near a large window, and stay as long as you’d like among the small potted plants sprinkled about the place. With something always coming out of the oven, the aroma kept you coming back for more with another latte or tea to go with it.

Pamela asked, “You’re new here?”

“I’ve been coming to Open Coffee for a few weeks,” Daniel said.

“What are you working on?”

Speaking fast to deliver the well rehearsed but still draft pitch, Daniel said, “I call it ’second order search’, meaning finding relevant excerpts between documents that Google or Microsoft might find in a first search. This can reveal features about a subject– aspects of which you didn’t know enough to ask.”


“The answer before the question, if you will.”

“Yeah, I get that.”

“Academic researchers used this technique to discover correlations between diabetes and other health issues– researching only by connecting common phrases between published medical papers– and those findings have since been validated yet were previously unknown to medical science.”

“Interesting. How far along are you?”

“Here’s my business plan.”

Flipping it over and back again, Pamela remarked, “One page?”

“Yes. The business is very straight-forward.” He paused giving her a moment to read, then continued. “Some of the financial comparison numbers are from my time at Zillow, so obviously those are confidential.”

“Of course.”

“Mainly, this shows that for the right headcount and lean operations, this is more than profitable in the short term. People named are of course those that I’ve worked with in the past– willing and able.”

“Do you have something to demo?”

“Not here. It’s functional and runs on my server at home. Didn’t bring my laptop–”

“That’s fine,” with a wave dismissing concern.

“For revenue, I’m looking to have– well, as a prototype interface– a tabs motif within the page for switching between search results from the usual suspects, then my results, then Amazon Marketplace. I say prototype because tabs went out of style in 2003, but I’m striving for functionality over style right now.”

“Of course.”

“Only Google Search API results are populated. Yahoo BOSS and Microsoft Bing APIs should be straight-forward for another iteration, but Amazon will be next. I know investors aren’t necessarily worried about revenue in the short term–”

“You’d be surprised… Well, that was before the housing bubble burst a few months ago. Right now, many want assurances.” She continued after a brief pause, “So is there a catch?”

“The algorithm takes a couple of minutes on an old Mac Mini connected by DSL– literally two or three minutes to download and cross-reference about a hundred documents. We can make it parallel of course, and existing code emulates some of that approach already. Proper concurrency comes after tuning the algorithm. Then there’s the usual motto, ‘spend half on marketing’ which is where I need the most help both financially and in strategy.”

“Fine,” she said.

“Hearing ‘googling’ uttered on a mainstream television drama had me realize that I just witnessed product placement. Probably a million dollars?”

“Could be.”

“My main limitation is the ‘friends and family’ round. People are either over extended… or–”

“There’s a lot of that right now. Too much has been locked up in either real estate or pension funds, and no one wants to withdraw.”

“I worked my way through university, if that gives some indication about my family of origin… Besides, they don’t invest beyond mutual funds.”

“I know that one well.”

*   *   *

Outside a nightclub one evening two young guys wore Stanford tee shirts of differing designs stood talking: Marc and his roommate who was smoking.

Dylan appeared drunk, holding onto a parking meter either for balance or dancing around it like a child might. He bummed a cigarette from the roommate. They start talking about tech startups. Marc was looking for his next new thing. He had recently received a masters degree in Economics from the prestigious university, so Dylan invites him for the following day to meet with a major venture capital firm. Getting into such a meeting gave someone street cred within the startup community.

At the meeting wore his same suit as before. In lieu of a familiar whiteboard, theirs is glass with beveled edges and attached to the optical white wall with small spacers. Dylan finished drawing his representation of a web browser window with boxes within boxes and red, blue and green squiggles on the border of the outermost box. He recapped the marker and replaced it within its tray with dramatic flair.

Dylan concludes with, “And that, gentleman, is how I monetize traffic on the web to maximum value. You might say that we literally have them coming and going, but I call this a traffic exchange model which is good for the publisher, good for the advertiser and of course good for your return on investment.”

They were impressed but noncommittal. The venture capitalists glanced at one another as a polite check for final questions before dismissing the meeting.

In the car, Dylan rode in the passenger seat reading email on his mobile phone. “Here’s one!” He read out loud, “‘If you need one brain that has deep experience with these four things…’ yeah, yeah, yeah,… ‘Available for consulting…’” He tapped and as if speaking to the computer on Star Trek, “Capture phone number… Dial.” After the chime, he left a voicemail message, “This is Dylan. I saw your posting to the Seattle Tech Startups mailing list. I’m on the road right now, but I’d like you to come by the condo and talk about our business. I’ll send email with the address.”

Rhett replied, “Hold on there, buddy. Better google him and check him out.”

Seconds later, Dylan said, “Damn, this guy has done a lot. Various mailing list postings, wrote articles, technical papers on Cite-seer,…” He paused. “Wait, a posting about Linux back in 1992– isn’t that when it started?”

“Don’t know, bro. Tech stuff is your department.”

*   *   *

“Good luck!” Emily kissed Daniel on his way out the door for the morning meeting. “Be positive. Ramona’s company is behind you; this is moving forward.” She referenced a startup where he had lost his job the prior month. He joined that one with much reluctance as a “favor to a friend” and with discounted salary as part of that favor. Events there might be explained by some as challenging astrological aspects or perhaps paying back accumulated karma from many lifetimes. Mundane or rational explanations failed.

Daniel left the blue Craftsman era single storey house and drove from the University District to Capitol Hill. The Space Needle made an appearance several times when crossing intersections along the way.

Daniel arrived at Rhett and Dylan’s apartment. It was a compact 2 bedroom unit. Black bar table and matching stools and the sofa reminded Daniel of rental furniture within corporate housing. Hand-written posters covered much of the walls. There was some writing in green and red on the sliding glass door, presumably dry erase markers.

Dylan had Rhett print a fresh copy of some paperwork. Daniel read the non-disclosure agreement and noted, “Five years is unreasonable and likely unenforceable in Washington State. Let’s make that two, which is more conventional.”

“How about three?”

“Fine,” Daniel said. “And acknowledge that this is only in consideration for potential employment or contract.”


Daniel wrote the additional note and signed.

“Good, good.” Taking the paperwork and handing it to Rhett, Dylan continued, “How do you feel about on-line advertising?”

“I probably would have had a different answer years ago, but I appreciate the need for most web sites to generate revenue, and that’s their main or only way to do so in most cases today.”

“Excellent. What if I told you that I invented the pop-under ad?”


“The patent for it just came through. It’s been seven and a half years, but we just got the letter from the United States Patent And Trademark Office. It hasn’t been assigned a number yet, so hardly anyone else knows that it’s been awarded. The next step is to actually have the official patent number assigned.”


“All this is confidential, hence the non-disclosure we had you sign. But that’s not it.” After a long dramatic pause, “I have a new patent on an even better idea.” Another pause and then, “I call it the Ancillary Ad. No pop-up, no pop-under. It’s entirely within the browser, which means it can’t be blocked. Let me show you.” With that, Dylan lugged his bulky, beat-up laptop and ran the demo. “I can see the wheels turning in your mind.”

“I’m… reviewing… all the pieces of what would make it work.”

“Better than that, I monetize here, here, here and one more,” pointing to text on the sidebar, the skin which frames the main content and the background images which is mostly obscured by the frame. “The fourth,” transitioning to a slide show from a recent investor presentation, “is when you hover the cursor over the text of an ad, a video player appears. You see, I’m competing against Comcast and other cable TV providers for video ads!”

He continued with further details, including “Through one of our partners, Adify, we have revenue already for traditional banner ads. We partnered with Omniture for third-party click-counting.” He bragged, “Our attorneys are the firm including Bill Gates' father.”

“You mean Preston Gates & Ellis?”

“Now, K&L Gates. Merger. Name change.”

They talked further on the patio which had glimpses of Interstate 5 half a block away. Dylan smoked a couple of cigarettes. Various geek-macho gems were exchanged.

*   *   *

Together, the foursome Dylan, Rhett, Marc and Daniel attended day of making presentations at Ramp, a firm for software development. Dylan and Rhett wore their familiar suits, and the other two wore jackets and tailored trousers for the occasion.

Located in Bellevue, it was more spacious than offices across Lake Washington in Seattle. Typical beige cubicles ran throughout the office. Various awards in etched glass and plaques on fancy wood were on display. Beyond business casual, the dress code for most included faded bluejeans.

Since some conversations had already taken place, this set of sessions focused on tech. The proposed plan was having Ramp write the customer portal and billing system– fairly standard stuff but would require an understanding of the ad system.

Discussions covered end-to-end software workflows. It remained at a very high level with some deep details presented to satisfy individual curiosities. Daniel explained the software architecture despite having only met the founders just a couple of days prior. He built high-performance systems with similar capabilities previously– data is data.

Ramp decided to take the ad network as their client.

Working with the new ad network that will control the lucrative pop-under patent made this an investment opportunity for Ramp. It thereby would secure revenue of very significant established players, making this a virtual gold mine. At that time, one couldn’t visit certain websites without having a Netflix ad left behind after closing the primary web browser window. That was the pop-under ad. The general sentiment among investors: it was too risky to not invest or partner.

They all went to lunch because Dylan is starting to shake. Rhett revealed, “He’s hypoglycemic.” On the way to lunch, Dylan begins smoking.

Following lunch they used a conference room within the Ramp office to meet with potential investors from long-running predecessor to Facebook: Topics covered textbook variety, “Show me a SWOT.”

In the coming days, they settled into Ramp’s process. The first “Genius Session” covered the Ancillary Ad, its workflow and business aspects.

Afterwards, “Marc’s comment was ‘You paid $10k to use their whiteboard,’” Dylan mimicked with a slightly higher pitch.

The second Genius Session another day laid-out user experience for publishers and advertisers.

Back at the apartment, Dylan tried bragging about his command over feeble minds, “And Daniel was like ‘gulp’ having never seen anything like that.”

Daniel said, “Actually, I used to work on Wall Street and saw that on a daily basis. No, I just wasn’t expecting to see that. It would have been nice to have been clued into the the plan, but of course I appreciate that such techniques are considered most effective when no one else knows to expect it. That’s all. But I must say that you don’t see much of that tactic in Seattle. May I ask: did you rehearse it?”

“Daniel, everything I do is planned. Not rehearsed but every possible path is thoroughly explored in my mind before setting foot in there. Every possible twist and turn is considered. I then steer those paths back to the outcome that I desire. I make them bend to my will.”

At that point, Dylan started making reference to essentially sodomizing everyone in his path. First, it was an anthropomorphic version of the company from where they spent the prior few days. Then, individuals at that company. Then, “Honey,” an abstraction of a girlfriend– possibly one recalled from the past, possibly his current one– “Oh, I’ll use lube; I promise.” The raunchy and derogatory monologue becomes very thick and degenerates further.

“Alright! Enough! See you guys tomorrow,” and with that, Daniel left the apartment/office.

*   *   *

At home, Daniel talked with Emily about being conflicted. They needed the money to cover mortgage, but this guy was so full of himself.

Bypassing the intuitive nudge to keep looking, there were two reasons to continue: First, the prospect of building server software likely to see astronomically more traffic than even some of the most popular startups would make for good experience.

Second, this Dylan character only needed to be tolerated for however long it would take to write and deploy the software. After that, others would be hired to take on the daily grind, and Daniel would get to move on with a professional accomplishment to count in his favor.

Surely even Dylan could be tolerated and fenced-in long enough for that.

In simple terms: fame and fortune. Ego and money. Wanting fame or fearing it remains firmly within the realm of ego. Financial greed or fear of having too little money both still focus excessively on money. It’s about putting superficial things like money before dreams and ideals.

While passion for building a better widget may have some redeeming qualities, this begins latching onto someone else’s dream at the expense of one’s own.

*   *   *

Everyone worked from “the condo” which was actually a rented apartment in Rhett’s name, but that bit of trivia would come later. Everyone sat around either a cheap folding table or the bar-height kitchen table with stools.

Rhett and Dylan argued fiercely about direction of the company. Rhett claims, “You’re changing the message. The focus shifts from an ad network to a search engine product…”

Dylan shifted from yelling match to calmly reciting one of his rehearsed lines, “My search engine is one HTML page.” The extreme swing of his tone goes almost unnoticed, at best caulked-up to some history known only among the friends from college.

Augmenting Rhett in sales, Jeff spent more time at “the condo,” embroiled in many arguments with Dylan who stated, “We don’t need any more advertisers. We have enough advertisers. We need publishers. Everyone is to be working on bringing in publishers.”

As quickly as he shifted arguing with one co-founder and then an employee, Dylan one day purchased a server-grade computer.

“But we have ServerBeach,” Daniel stated. “Besides, your ISP doesn’t allow servers so no one on the outside will be able to reach this. It can only be for internal use.” Having lost that battle, everything gets put on hold while Daniel wore the hat of sys-admin: configured Linux and dealt with features that the boss wanted which are unnecessary for this early stage– features like RAID for mirroring disks.

Justin interviewed, yet timing wasn’t right. He was still at Ramona’s company, an earlier mess that Daniel unwittingly drew him into. This job was to be different: just a couple of server software geeks handling very large volumes of network traffic otherwise seen only at the top twenty or so Internet sites.

Alan recommended a graphics designer to make logo, business cards and letterhead: Jonathan. To not be rude, Daniel paused his work to join the conversation, asked a few graphics design questions, then nodded with decision-makers present, “You got my vote.” The newcomer and Dylan had at least one thing in common: a fondness for extended, pointy-toe shoes. It became a moment of bonding between potential employee and employer nonetheless. Their conversation continued with Dylan talking about when he was getting MBA degree.

Jerome joined full-time after having been a remote piecemeal worker from some of the founder’s earlier projects.

Kevin interviewed, and on the day to sign paperwork, canceled via email.

Dylan hired a Unix sys-admin to work on the server. The first step of delegation from Daniel being Director of Engineering tested the new company on its handling of outsiders.

They hired additional contractors doing Flash development for one of the custom ad widgets, the fly-out streaming video player.

There were various presentations to investors along the way: Andy from Open Coffee, some institutional M&A guys in Allentown– err, South Lake Union– etc. In those presentations, Dylan bragged about using Adify for bootstrapping the new ad network. Bootstrapping in itself wasn’t uncommon practice. Investors in an early stage company, however, don’t expect revenue and often discouraged it this early as being a distraction. However with each month, revenue figures continually increased: $3,000 then $5,000 and most recent utterance, $15,000.

Somewhere in there, Dylan spoke to his friend and former business partner, Andrew in Portland. Rhett whispered, “These nearly always degenerate into arguments and yelling from both sides.” Dylan would be kind enough to share the conversation, thanks to the joys of speaker phones. After one such phone call he announced, “I need a drink.” And then another.

Through a consulting CFO staffing firm, someone formerly from a reputable ad network reviewed the proforma. Dylan claimed this guy suggested increasing the projections, yet these were ridiculously large numbers even if pretending to be Google’s own ad network. Daniel mentioned to the founders that while he appreciated the nature of the exercise, he was too unfamiliar with the material to judge it and must rely upon those three with advanced business and economics degrees to get it right.

Dylan celebrated every possible occasion: having met with an investor, “Let’s drink.” Having some quasi-formal paperwork delivered, “A toast!” The frequency kept increasing, and rationale kept reaching.

Dylan began drinking during the day. Daniel quietly declared, “I need to work from home to finish this part,” more regularly– an excuse to leave within an hour of Dylan’s drinking to skip his belligerence.

Daniel wrote the principal piece of the server app in a weekend– an ode to the power of Common Lisp programming language for high-performance, robust use cases and FreeBSD for operating system.

*   *   *

There was a social event hosted by Dylan at a nightclub on 45th Street in the University District. It was actually more of a bar that had a fancier audio system than the average karaoke place, but the variation in floor tiles at center of the space could appear to be a dance floor if one squinted enough. The event was posted to the Seattle Tech Startups mailing list, so there was a healthy turn-out. The agenda for that evening was largely to promote the new ad network. After all, many startups would need revenue from ads, and others would need to buy ads.

Dylan claimed to have been part owner of this so-call nightclub. However, it was the floor tile company of his girl friend’s family that contributed materials and labor for the renovation in exchange for equity. Whether or not Dylan or his family held any actual stock remained unknown. Anyone could rent the place for an evening, and there was nothing unusual about us being there.

*   *   *

A follow-up phone call with Dylan’s former business partners included Daniel. They compared notes on mechanics of the decision-maker software. “At a fundamental level, it appears as a pseudo-random number generator to an outside observer,” Andrew said. The Portland company signs-off on the approach with special nod to choice of programming language, operating system and pragmatic redundancy of deployment.

Daniel and Jerome wrote various JavaScript components. Jerome wrote prototype video players. Daniel created the core JavaScript library that would ultimately be included on every publisher’s page. It cannot be the slowest element to render on their page but instead should be capable of being the first to render.

Through Daniel’s connections from earlier that year, both Andy and Pamela visited. They received a glimpse at the early stage startup’s cliché of makeshift office. By this time, entirety of “the condo” overflowed with people sitting shoulder-to-shoulder around folding tables, on the sofa, at the kitchen table, on the balcony, etc. A server intended to be in a rack in an air conditioned room roared in the corner. Paper was taped to every available inch of wall space. Windows were used in place of whiteboards. And so on.

Through Alan’s personal connections, he secured office space. Upon move-in; Jonathan and Daniel each supplied his own desk, chair and of course, computer. Daniel also supplied his own high-end projector for the whole office and previous edition Mac Mini for office server. It handled email and calendar.

Meanwhile, Dylan went on a shopping spree. He bought the original Apple MacBook Air, well known then to be overpriced and woefully under-powered but a status symbol. He purchased a regal-looking desk and ordered Alan to assemble it.

Following a meeting with their patent attorney, Dylan took a detour into Nordstrom department store. A few days later, he revealed a new thousand dollar suit as a business expense.

On another shopping spree at Fry’s Electronics, Dylan picked up a flat-screen TV (possibly plasma but likely just an LCD) to be mounted on the wall of his office.

By this time, the bridge round of financing had closed. Pamela’s contact from a family that made their fortunes from the timber industry invested $450k. In return, they received convertible notes that would be redeemable for either stock or cash repayment. That choice would be at their discretion upon close of next round of funding. At other end of the spectrum, failure to repay within the specified time period would result in the company forfeiting all intellectual property to be disposed of at discretion of those bearing these convertible notes. Since Dylan intended to control the lucrative pop-under patent, that would be a sizable consolation award.

Dylan calls in Ann and Alan, “Plan a party…” He picked a seemingly random date.

Alan asked, “Isn’t that your birthday?”

“Don’t call it a birthday party. It’s the ‘pre-launch’ party that just happens to occur on my 32nd birthday.”

Funds from the bridge financing cleared and became available very quickly. In a quiet moment after all others left for the day, Dylan uttered the following words to Daniel.

“Half a million dollars. It’s the most money I’ve ever had.”

Point of distinction here: those funds belong to the company.

It would be one thing to say that it’s the most money one has ever seen or perhaps ever controlled, but to imply ownership with the phrase I’ve ever had takes this to another level entirely.

For principal scientist– someone to formulate a better algorithm for determining what ad to show a particular person– they secured hiring a former co-worker of Daniel’s and Justin’s. Shawn earned a PhD in multi-agent AI. That is where each component would sanity-check and “learn” from the others. The strongest element would “win” for making better decisions in the moment and learn from it for future decisions.

Daniel required of the company, however, for Shawn to be hired only if his salary could be sustained from revenue. Dylan gave his assurance.

Another contract sys-admin and systems programmer was hired, Michael.

Dylan was drunk early on the day of his party. This incidentally began at least 2-3 if not 4 solid weeks of being discernibly drunk every day. That included weekends, which of course everyone worked straight-through and therefore able to verify the continuity.

His cousin passed-away about one week following the birthday party, and Dylan became inconsolable for several days.

More people were hired, and Daniel delegated. Justin finally started and took ownership of the server software. Mark did PHP work under Jonathan’s design direction. Tim started as a contractor for one month then to become Director of Ops/IT.

Dylan randomly would stir the office with extremely short deadlines. He used excuses that investors needed to see something in 24 or 2 hours, yet no forewarning had been given.

Later revealed: there was in fact no investor and no such inquiry about these things. This was likely a tactic learned from the blog of a startup CEO that happened to have a highly successful exit and thus must speak gospel truth.

There was a well-established scenario described by renowned physicist, Richard Feynman. Briefly, during World War II the US dropped cargo on islands in the South Pacific as part of a logistics chain. The locals were unaccustomed to technology such as helicopters or cargo planes. After the US troops departed, locals crafted bamboo huts and improvised coconuts to look like headphones to mimic the operators within ground stations. And they waited. Their hope– or instilled belief– was that by mimicking these actions, the gods would deliver more gifts from the heavens. Or so the story goes.

Such is the cargo cult mentality:

Repeating what apparently worked for someone else is surely to work for you too.

One day, the ad network was contacted– cold called– by recognizable venture capital firm, Madrona. They were very interested in leading the Series A round of funding. That would be next after the recently closed bridge financing.

Madrona visited and appeared quite impressed, as were all potential investors thus far. All of the checklist items were be ticked from their pattern-match list: co-founders were friends since university, business plan had all the right jargon, proforma showed big numbers (“It’s all B.S., but they want to know just how big you’re thinking”), lean operations, cheap office space after recently having worked out of the founders' living room, etc.

Also, these investors were satisfied by technical competencies. Server software had been deployed onto production servers– half a rack worth of equipment at Rackspace. (Consensus on AWS in early 2008 was: too experimental in for their expected traffic.) Better yet, rather than take the word from Director of Engineering, they were given contact information of the rep at Rackspace to get his confirmation. “Have them check the logs and see our load & capacity test results, warts and all.” One minor known issue– after sustained 40 million requests per day on a single commodity server– Daniel already had a solution identified. With 4 servers for redundancy, there would be plenty of runway before this becomes a problem.

They offered all the tech as an open book to this grade of investor.

Being cautious by nature, Madrona’s lead on this potential deal negotiated a date in mid-September (mere weeks away) to measure traction after launch.

Everything seemed to be on track from their perspective.

Jeff and Daniel met for lunch and talked about product/service ideas. It was revealed that most publishers dislike the pending patent. “Publishers don’t want their traffic hijacked to an advertiser’s page.”

The ancillary ad unit was one that used the relatively new CSS trick of an “overlay” or simulated window within the browser. Essentially, the browser would forward the publisher’s page to the advertiser’s landing page with an overlay containing the publisher’s content. That is, the advertisement completely surrounded the content like placing your article in a smaller box on top of a full page ad. Close the widget, your articles would disappear, and the ad gets seen in full view.

According to Dylan, “Advertisers love it.”

Unfortunately, actual publishers hated it.

Justin, Jonathan and Daniel met for lunch to compare notes. Daniel revealed that Dylan bragged about not getting a paycheck. Dylan had instead used the company bank debit card for groceries and probably his new suit. Jonathan commented how that would be illegal within a Washington State C Corp. “If he is doing that, it’s called embezzlement.”

Jonathan’s perspective was based upon prior experience being CEO of a mainframe consulting company long ago.

Dylan’s cousin, Kyle, arrived.

He asked Daniel to work through him regarding matters pertaining to Dylan. Daniel recited a rather long laundry list, including enough details to resolve and correct the matter regarding Dylan’s lack of salary.

Meanwhile, Dylan invited the Principal Scientist to finally join. Confirming that he would be paid from revenue, Dylan assured Daniel that this was indeed the case.

Not content having the startup compared to a family, Dylan brought his actual family into the company. His sister arrived, and his mother soon followed. Stories about a previouse family business of theirs having been a used car dealership seemed to fit.

“Wow, the mouth on that one,” one employee noted about the mother. “She spews the worst obscenities I’ve ever encountered in my life. And the fire hose just keeps going!”

Jerome stopped using the software version control system, so naturally source code diverged. Dan R essentially wasted two weeks working on outdated code where bug fixes had been applied elsewhere. Reconciling the divergent code took days to merge. These were all symptoms of moving too quickly and being micro-managed by the CEO.

Justin, Jonathan and Daniel met for another lunch to compare notes again.

They talked of using Daniel’s earlier business idea and running it like an ad network but without the patents pending (which publishers dislike anyway).

Dylan insisted on being involved in very deep programming decision despite not participating in related tasks which must influence those decisions. Allowing Dylan to discard two weeks work, Dan R begins again, conforming to Dylan’s desires. Dylan then refused to accept the additional work, claiming it was broken but in fact just a simple and obvious typo in the first draft of instructions.

Rhett invited Jonathan and Daniel to lunch, but only Jonathan could go. This would get referenced later as Rhett blowing the whistle but really just confirming and supplying details to what the others already suspected.

Daniel told Emily at home that he’d like to quit but believed they needed the money to cover their mortgage. Having brought friends into this mess he felt obligated to see it through for their sake more than his own.

It was revealed that no ads had ever been sold.

At this point, other arguments involving Dylan erupt regularly at the Director level.

Following one such occurrence, Dylan’s sister commented to Daniel that she was capable of seeing auras and sensed that he was quite angry. Putting the cap firmly on the whiteboard marker and placing it in the tray, he began to say without turning, “You need to read auras to see that I’m angry?” With that, he returned to his office shared with Jonathan and Justin. That exchange would be cited for their mutual stress-relief amusement for some time to come.

Dylan announced that if he didn’t return with a check that people will be laid-off, yet this is less than one month since the previous round of funding at $450k.

*   *   *

The core constituents (Rhett, Alan, Jonathan, Jeff, Daniel) met outside the office to discuss possible alternate actions.

Daniel opened with, “I’ve reviewed the pop-under patent since it’s finally been published a couple of weeks ago. It’s… well,” pulls out a tiny notebook, “US 7386555. No surprise, there are sufficient ways to circumvent it today with a modern web browser. Remember, a patent says you must do A-B-C-D, but if you insert a step anywhere in there or change one of those steps, you’re not infringing.”

Alan responded, “My, oh, my. Dylan’s grand plan to leverage payment from the big players won’t hold water.”

“Most interestingly, Dylan’s name isn’t on this patent! Several people from the Portland ad network but not his name.”

Jonathan said, “So much for having invented the pop-under.”

*   *   *

Dylan returned without a check. Where, specifically, he had been remained unknown, but it was supposedly an investor meeting.

Upon his return, the core constituents met privately with Dylan and demanded that he step down.

He’s given two options: retain 51% ownership but leave with generous payment upon close of Series A, or be alone in the company because everyone else would leave.

He wanted to know what the heart of the perceived problem was. Since it was Dylan being head of the corporation, he reluctantly agrees to let Jonathan be interim CEO. Of course, there’s much drama in between, including a moment where both Jonathan and Daniel rose to leave in resignation.

As apparent to everyone in the room, Dylan was merely buying time.

At a company-wide meeting, Dylan attempted to instill the notion that all the problems were the fault of the employees. It was to be the staff’s obligation to tell investors at their due diligence what Dylan thinks they want to hear.

Like a footnote, he also acknowledged that Jonathan became interim CEO.

A small check arrived, with which Jonathan dispersed cashier’s checks to employees for $1k each since paying full payroll for the month was doubtful.

Dylan insisted on changes being made while backseat driving with Mark coding PHP. Consequently, something broke on the live site. Dylan noticed this later in the evening. He sent a scathing email to all staff, essentially chastising Mark for not following proper procedures and thereby wrecking the live site.

In response, Daniel responded “in kind” also to all employees. He correcting the portrayal versus actual sequence of events, and directly assigns blame on Dylan.

The following day, Daniel asked Jonathan upon entering, “So, do I still have a job?”

Jonathan said, “He’s not here yet. And besides, if he even hinted of firing you for that, he would have lost his front teeth. I promise you that. Actually, you’re everyone’s hero up there. Ryan, in particular…”

Dylan sent an email reply, “accepting full responsibility.”

Once in the office, he was patronizingly apologetic to Daniel. With that, Daniel warned others that the pendulum called Dylan was likely to swing to exceptionally vicious the following day, having seen the pattern before.

Sure enough, the next day, Dylan was angry, demanding, insulting and degrading to nearly everyone. He and Daniel argued regarding billing, licensing terms and the Digital Millennium Copyright Act.

Dylan perceived Daniel hindering the company’s progress. Daniel explained from prior experience in film production, the larger context of the situation. There would be inevitable legal jeopardy that Dylan’s desired actions would bring. Using downloaded versions of the current year’s Super Bowl ads for placeholder content would definitely be discovered. That was the source of objections.

At conclusion of the disagreement and after Dylan left the room, Daniel states, “I’m done.” The sales guys and one other founder were witness to it all.

Daniel returned to his desk, regains composure, and repeated to himself, “I’m done.” With that, he closed his laptop, surveyed his belongings in the office, then packed to leave for the day.

Meanwhile, Dylan apparently entered into a yelling match with the neighbor.

Dylan threatened to bash-in the skull and eat the brains of the downstairs neighbor who happened to be over six feet tall (Dylan was maybe 5’5”) and a professional body builder (he owned the gym downstairs), believed to be using steroids and known to have a short temper.

Daniel told others in the office, “If Dylan is insane enough to threaten bodily harm which implies death to a 6’4” bodybuilder suspected to be on the juice, god knows what this idiot is going to do.” With that, Daniel returned the following day with his car and removed all his gear: desk, chair, etc. He worked from home for the remaining five business days of July, fielding the occasional question from junior programming staff.

It turned out that Dylan was previously on medication for bipolar disorder. Some time previously, he stopped taking his medication.

Inquiries were made with the Unemployment Office regarding whether it would count as being laid-off if the company failed to make payroll. The answer was yes.

The end of month arrived without employees being paid salary.

The time-frame from when the Principal Scientist arrived to payroll being missed was exactly two weeks. Having never been paid by the ad network company, the unemployment office had no record of him ever having worked there and therefore disqualified him from claiming benefits.

Daniel spoke with each person (except Dylan) via phone. Marc revealed that he too had doubts about the proforma back in March or April.

Rhett revealed that Dylan– in fact– has no MBA degree. The use of Adify for bootstrapping the ad network and building relationships with publishers– in fact– was fiction. There was no revenue from Adify. There was no revenue, period.

“And that’s the money that he used to not pay me,” quipped our Principal Scientist.

This also meant that Dylan lied to investors.

Giving benefit of the doubt regarding the “no salary” and possible embezzlement scenario as simply ignorance: Lying to investors was just one of his legal infractions.

Through channels available to one of the staff members, it was revealed that Francesco (a.k.a. Dylan) had outstanding warrants for his arrest in Portland. He owed child support for two prior marriages that both ended in divorce. Possibly related to that as some states do, his Oregon driver’s license had been suspended.

*   *   *

Daniel met with Pamela, who brought in one investor for $450k which was about half of the total money allegedly raised. It was likely the vast majority of actual money, discounting pledges or in-kind exchanges.

Daniel begins, “Pamela, have your investor exercise all of her rights as investor. Look at the books. Be thorough. Ask the hard questions again, and insist upon seeing evidence to have them backup their claims. Repeat your due diligence again.”

She asked, “Are you a director?”

“My title is Director of Engineering, but if you’re asking about Board of Directors, no. I have no access to budget or numbers.”

“What else is there? Why tell me this now?”

“Your client’s investment check cleared in June; they missed payroll for July. How does that even happen? We were paid monthly, so that hurt.”

“Anything else?”

“We have reason to believe they may not have sent tax withholdings to the IRS or state– ever, for six months.”

“Let me tell you how that works. The IRS will put a lien on each member of the Board for full amount. The IRS doesn’t care who pays it. It is then up to those individuals to settle it among themselves.”

“Will the IRS come after us, individually?”

“Not likely, but keep your pay-stubs showing the deduction has been taken.”

Changing direction, “I’m so sorry for your client. We knew Dylan could be difficult but never thought it could go this way, let alone so quickly. His sister mentioned that he had been taking medication for being bi-polar but has gone off them in the past. We only just learned this in the past couple of days.”

“Oh, dear god…”

“Could we have him removed?”

“To do that essentially requires getting him deemed incompetent, which is extremely difficult under the best conditions.”

“Let alone someone who is hostile like Dylan has become.”

Pamela let out a deep breath– not quite a sigh.

Daniel said, “Oh, and ‘Dylan’ is not any part of his real name. Francesco is his legal first name.”

*   *   *

At home, Daniel explained to Emily, “If that’s what it takes to be an entrepreneur– exploiting and manipulating people– then I’ll never start a company. I just don’t have it within me. I just can’t do it.”

Emily reassured him, “You wouldn’t want to do that.”

Due Diligence day finally arrived, and the investors interviewed nearly the entire staff.

Official layoffs were delivered, albeit verbally.

The office was cleaned and everything restored to the state in which they originally found it. A few items were secured in a small closet within the former office: the rack-mountable server, printer, disassembled desks, etc. Source code was burned to CD-R and given to each of the available Founders.

Dylan was nowhere to be found during that exercise.

In the postmortem at a local art-themed bar:

After discussing future job prospects with those from successful ad networks, it was revealed that there are generations of such companies.

Early versions were based upon “traffic exchange” whereby website publishers wanted new visitors almost more than ad revenue. Then the 1990’s ended. The next wave was based upon multiple tiers of ads, based upon placement on the web page, depth of page within navigational hierarchy, etc.

By 2007 when this new ad network ostensibly began, all of those models were being thoroughly displaced. However, legacy approaches existed in sufficient volume to obscure this fact to casual observers.

A startup founder, however, isn’t a casual observer, unless of course he assumes to already know everything about the subject.

Unfortunately, no one caught this error of omission in their due diligence.

Instead, each layer relied upon those who preceded. For instance, given that K&L Gates was the law firm and a very choosy one at that, this gave credence from Daniel’s point of view. The fact that Marc held a Masters degree from Stanford University only added to the implied credibility. Since principals of Ramp group had built a successful business during the dot-com era, their presumed diligence also contributed assurances.

The next wave of staff was impressed with Daniel and his work such that his participation was named as a major factor by Jonathan for signing-up. Their combined presence was also a major factor in the due diligence of the largest investor for that $450k.

But ultimately, it was a house of cards.

“I’m ashamed to say that I’ve been played,” Daniel admitted.

A meeting was held with private attorneys regarding getting paid for July, “because if you don’t ask, you won’t get,” so it was asked “by way of letterhead from one law firm to another.”

K&L Gates responded that they were no longer representing the ad network but would forward the letter.

Dylan responded a few weeks later. He overtly accused each and every person named on the original letter of having stolen from the company. Presumably, he referred to company laptops which former employees retained in lieu of salary. Of course, Daniel and Jonathan had each supplied his own personal laptop, but such facts were irrelevant to someone like Dylan.

The moral of this little interaction story is that you cannot be rational with an irrational person. You cannot negotiate with a sociopath; he will use every dirty trick plus ones that a normal person would be unable to imagine.

Adding insult to injury, the law firm that Daniel had used in prior years and for this misguided endeavor, had delivered an outrageously expensive bill for several hours of “research” and paralegal work. The extent of services requested had been only to compose and send that letter asking to be paid. Citing relevant laws and case history was feature-creap.

*   *   *

Shenanigans aside, there was a wonderful group of people that worked very well together– minus a certain 51% owner, of course.

Daniel met with their contact at Madrona for a 1:1 chat.

He confirmed that they were “more interested in the search component than the dime-a-dozen ad network.” However, they were no longer in a position to onboard companies into their portfolio until well into the new year.

Asking other investors, it was unanimous: No further funding would be possible for the balance of the calendar year. “They’re gone for the holidays, and we’re not talking Labor Day or Thanksgiving,” Andy at Open Coffee said.

Then it expanded indefinitely. That autumn, the 2008 financial crisis hit. That year may forever be associated with the words, “Too big to fail.”

That wonderful group of people that worked so well together was disbanded due to lack of funding.

The most painful revelation: the “revised business model” as suggested by Madrona came from the original business plan Daniel showed Pamela earlier that year at Open Coffee.

The nearly half million dollar investment to the ad network from her contact– granted in part due to apparent “low risk” because software was already deployed onto production servers and exceeded load & capacity test requirements– would have easily lasted the alternate company for one year according to the moderate burn-rate projections within Daniel’s original plan.

Had he been able to cover mortgage and expenses following the previous startup’s debacle, there might have been sufficient runway… But that, we will never know.

Too little, too late.”

Copyright © 2008 Daniel Joseph Pezely
All Rights Reserved.