In the 1995 movie "The Net," Sandra Bullock plays a victimized hacker who, in one scene, orders a pizza on her computer. That moment flashed by most moviegoers (as did the rest of the film), but it gave Tim Glass an idea--not for a better movie but an Internet company. With three longtime friends and colleagues, the now 40-year-old entrepreneur set about recruiting restaurants to post their menus online. The goal: point-and-click ordering. They called the company CyberSlice, and later, Cybermeals. Though the enterprise had 10,000 restaurants signed up by the end of last year, it had spent $20 million and brought in only meager revenues.
In the wacky economics of Silicon Valley, however, such discouraging results need not be a recipe for failure. Visions of creating the next Amazon.com combined with the ready availability of capital spark new life into even sagging e-commerce startups. In fact, last week could have been Cybermeals' best ever. Its new CEO, former Disney exec Rich Frank, announced $25 million in funding and a new name, Food.com. "We want to be the portal for food," he told a crowd from the Restaurant Delivery Association in Las Vegas. After the speech, the man responsible for such varied entertainment as "Dead Poets Society" and "The Golden Girls" was thronged with admirers hoping to have their picture taken with him.
So how did a money-losing company with an unproven idea score a flashy CEO and deep-pocketed backers? The Cybermeals story, from birth to last week's announcement, is characteristic of a startup's often rough passage in the budding Net economy. The four founders were plagued by a constant shortage of cash, and made serious mistakes in deciding how to spend the money to promote the site. And like other tech entrepreneurs, they had to consider a difficult trade-off: whether to relinquish control of their company to venture capitalists in exchange for the money that could save it.
Cybermeals was formally launched back in December 1996--still the infancy of e-commerce--with a click of the mouse by Apple cofounder Steve Jobs, who was impressed by the site's early technology. But the glamour quickly faded. The company's first 26 employees were crammed into a 3,000-square-foot office in downtown Seattle. Six- and seven-day workweeks were standard as they strained to refine their software. "For two years," says Glass, "I didn't have a home." Cofounder and programmer Bryan Cupps recalls "36-hour days" tuning the new software and partly blames the exhaustive work for his divorce.
Seeking to promote the site in July 1997, the founders paid the customary visits to big portal companies like Yahoo! But instead of signing just one or two deals to place banner ads on the heavily trafficked sites, the company ended up signing with AOL, Lycos, Excite and Yahoo. Together the four deals called for Cybermeals to pay a whopping $54 million, spread out over four years. "Nobody got swept up in the excitement over the portals more than us," laments cofounder Jim Brimhall.
The deals were a big mistake. Not only did the banner ads bring in fewer visitors than expected, but those Web surfers who did respond were often from far-flung locales where the company hadn't signed up restaurants. For the rest of the year the company struggled to pay its bills. When employees re-ported to the San Francisco marketing office one November morning, they found men repossessing the rented desks and chairs. An employee had to hand over his credit card to keep the furniture.
By the end of 1997 Cybermeals desperately needed cash. To help guide the company and raise money, the founders brought on consultant Bill Jesse, an early investor in Wired magazine with experience in the food industry. Jesse took the title of interim CEO, and the company met with a dozen potential investors in early '98. Among them was Accel Partners, a venture firm with an $800 million coffer that has seeded Internet pioneers UUNet and Real Networks.
Sitting across from the founders in Accel's starkly beige offices in Palo Alto that February, Accel managing partner Jim Bryer decided that "focus and operational details [in Cybermeals] were significantly lacking." But he also saw the idea's potential, envisioning a day when television brings high-speed Web access to the home, and a couch-potato could, say, order a pizza on the Web while watching Sunday football. Bryer decided he'd need to replace the founders with experienced outside management--in venture-capital parlance, a "foundercide."
The founders were bitterly divided over the prospect of losing control. Jim Brimhall and Ford Smith, the founder of a Seattle-based chain of pet stores, considered the deal an outright sale of the company. But Bill Jesse and Tim Glass signed the deal, and that May, Accel invested $10 million and took control of the board. All the founders except Glass were asked to resign (he recently quit on his own).
That paved the way to last week's announcement. To helm the startup, Bryer hired Rich Frank, who with Michael Eisner, Frank Wells and Jeffrey Katzenberg helped spur Disney's revival in the '80s. Frank has refocused the company to target the largest 10 cities, as well as the university and the business-catering market. He also canceled the deals with all the portals except AOL, and instead will advertise offline, as well as on the Web sites of local newspapers (including The Washington Post, which owns NEWSWEEK). New investors, like the Chicago Tribune and Sega founder Isao Okawa, have helped solve the money problem.
Sitting in the company's expanded San Francisco offices, sipping the Cabernet that he makes at his own winery in Napa Valley, Frank described his big plans for Food.com. He wants users to be able to make restaurant reservations online, send gourmet gifts to friends, even buy the cookbooks of his restaurants' chefs. His mantra is pure Disney: "How do we get into your life in every possible way?" Investment banks, he adds, are beating down his door to one day take the company public.
As for the four original founders, Tim Glass and Bryan Cupps are working on a new startup together, and Ford Smith and Jim Brimhall are cooking up their own venture. Despite the fact that they all own stock in Food.com and stand to reap millions if the company is successful, the pairs of former friends hardly speak.