E*Trade signs up
Critical Path's breakthrough came with the signing up of E*Trade, the on-line broking company, headed by Christos Cotsakos. That was in April 1998 and it gave the company the credibility it craved:
'When we signed them up, it gave us a reference to sell into the ISPs (internet service providers). Christos saw the concept of outsourcing, the concept of the technology and the scalability of it, the ability to run the service in real time. It took another visionary to say we are going to go with you and we want to invest in you. That happened around the same time that the venture community began to understand the idea. But it was a gruelling process.'
But it was also a moment of achievement and pride:
'It was a great thing for me personally. Even though I was the chairman of Magellan, I think everyone looked at it and associated me with the Maxwell family. I didn't think it was fair, so I was proving to myself and the world that I could do it. That is what drives an entrepreneur, they all have a chip on their shoulder - that's one of the motivators.'
David Hayden, Christos Cotsakos, a dolphin and a billion dollar VC fundHow do you FedEx a dolphin? That was the challenge that Hayden and E*Trade's Cotsakos found themselves facing in 1999. The result was a philanthropic technology fund for start-ups, which has already raised $300 million and could rise to $1 billion by the time it launches later in 2000. The idea for the venture started after a marine biologist approached Hayden to fund the $75 000 that Federal Express had calculated it would cost to fly a sick dolphin from San Francisco to Florida for treatment. Hayden called on his friend Cotsakos to share the cost. In the end, a phone call from Hayden to Fred Smith, the FedEx chairman, saw the bill waived. However, the incident stirred the two entrepreneurs into realizing the strength of their business links, and the need for some sort of trust fund that causes – such as sick dolphins – could call on. &We are two successful, wealthy and smart businessmen who want to use our experience and contacts to make a difference,' says Cotsakos. The new venture, as yet unnamed, will replace the role of the venture capitalist in bankrolling new technology companies. Hayden says the group will offer more generous terms than those usually given by early-stage investors and take a more active interest in the companies' success. Thus it will also act as an incubator to member companies, giving management and technical support. In addition, the operational and strategic management of the companies will be undertaken on different levels. Thus the start-ups will operate with two levels of control, one strategic and one handling the day-to-day affairs of the company. Hayden and Cotsakos will utilize their extensive contacts to bring in outside experienced entrepreneurs to sit on the management boards. 'Nothing has ever been done like this before,' says Cotsakos. A network of around 150 companies is envisaged. They will be linked through these strategic boards, as well as through a technical infrastructure. In return, companies will pay a proportion of their profits to the trust fund for good causes. The proportion has not yet been decided, but may vary from company to company depending on their pace of development. As with most Silicon Valley start-ups, the aim would be to nurture them and take them to the public markets. Cotsakos, a decorated Vietnam War veteran, hit the headlines recently when it emerged that he had earned $9.6 million that year, more than double his previous year's remuneration. The amount covered salary, bonus and stock options. E*Trade lost $54.4 million in the same period. Hayden, an internet veteran of several years, owns stock and options worth more than $150 million in Critical Path. |