Date: Mon, 18 Aug 1997 09:36:55 -0700
To: Adam Lashinsky
From: Jonathan Steuer
Subject: From SJ Mercury news: Cyborganic is paying for its mistakes
Cc: Cyborganic Community Members
Sender: owner-cc@cyborganic.net

hey adam-

nice article... i can even deal with the relatively negative spin without problem, though i did actually expect that this would be part of a larger piece, and not the main focus, as you said it would be. and it ran at least a week sooner that you said it would; also a surprise to me.

most of the article was at least grounded in our conversation; however, i find the following to be somewhat objectionable (and of questionable truth):

} At the same time, its spending was prodigious.
}
} It rented a two-story building on Mission Street for $8,000 a month, hired nine } full-time staffers at its peak and even retained an architect to design its futuristic retail space. One grandiose touch: waterfalls to drown out the noise from computer fans.

under no reasonable set of criteria could our spending (at least in terms of monthly cash burn) be considered "prodigious." the waterfalls were a cool idea -- but would never have been built without at least $5M in financing in the bank. please do not conflate dreams with reality -- you make it sounds as though we spent employee payroll dollars on rocks and water pumps so we could drown out the deafening road of our computer fans, a scenario that bears no relation to reality. in addition, as i emphasized to you, we had nine full-time employees for a total of about four weeks (out of about 96 total weeks since incorporation), so i'm not sure that number represents a useful measure of anything. you also fail to mention that over $400k of the $710k in money spent was credit, not cash, and that a lot of it is now current debt. but i guess *big* numbers are always *better*, even if they do not represent anything about a normal state of affairs... ah, journalism.

what i find most objectionable about the piece is the description of the "illusory $200k" -- the correct illusory amount is $2,500,000. and holding out for $200k in the context of the rest of our financial picture paints me far more of a fool than does holding out for $2.5M, IMHO. so much for fact checking, though since i have never received either amount, the size of my illusory check doesn't really matter.

if you don't mind, i would at least appreciate being sent a copy of the paper from yesterday, since i didn't see this until it was no longer available in dead tree form. i'm curious in particular about the pictures...

of course, the story is already out there, so there's nothing to be done about these problems. but i thought you might be interested in my feedback, in any case.

best-

-jonathan-


> Cyborganic is paying for its mistakes
>
> BY ADAM LASHINSKYMERCURY NEWS STAFF WRITER
>
> PART of the folklore of Silicon Valley is the notion that all it takes to raise venture capital is to hang out a shingle with ``net'' or ``cyber,'' float a business plan before a handful of financiers and wait for the cash. Cyborganic Corp. is (barely) living proof that, like most fairy tales, the stories about money surging through every T-1 line are at times in sharp contrast with reality.
>
> ``Whoever said that is on crack,'' grouses Cyborganic's president and CEO, Jonathan Steuer, who has a B.A. in philosophy from Harvard, a Ph.D. in communications theory from Stanford, and a mountain of debt he's unlikely ever to repay from his failing start-up company.
>
> Cyborganic was supposed to be a combination cybercafe and Web-site clearing house -- or ``Rainforest Cafe meets Kinko's,'' as its founders put it. From a base in San Francisco's Multimedia Gulch, the fledgling company planned a storefront noshery with computers, scanners, meeting rooms and occasional live music.
>
> Above the retail space would be the nerve center of an electronic community -- the mother of all intellectual Web sites -- where Cyborganic's home page would link cybernauts as diverse as Silicon Valley investors, massage therapists and readers of the company's two online soap operas, ``Geek Cereal'' and ``The Couch.'' The latter is an online drama that features ``eight dynamic, soul-searching, fast-living characters who meet for group therapy in a psychiatrist's office in Manhanttan's Flatiron Building.''
>
> But Cyborganic's synapses never fired at full strength. Instead, the company made many of the typical mistakes of a Silicon Valley start-up. It spent too much money too quickly and hired too many people. Despite persistence, the founders were unable to present venture capitalists with a business plan the financiers could buy into.
>
> ``We never got beyond organizing our own community,'' says Steuer. Interviewed in what's left of Cyborganic's office, he wears the start-up CEO's uniform of a purple T-shirt, black shorts and sandals, his curly black hair pulled back into a ponytail.
>
> Cyborganic did succeed in raising some cash. Steuer, 31, who worked on Internet projects at Apple Computer Inc., Wired magazine and CNet Inc. before founding Cyborganic, got $50,000 from a friend in the fall of 1995. The following summer, he landed another $230,000 from family and friends and received a commitment for an additional $200,000 in financing that, despite being promised months ago, hasn't come through.
>
> Unfortunately, says Steuer, the company was spending money faster than it was coming in and ``half that money went to bail us out of the hole we were in then.'' Cyborganic's only revenue came from occasional small Web-site consulting projects. At the same time, its spending was prodigious.
>
> It rented a two-story building on Mission Street for $8,000 a month, hired nine full-time staffers at its peak and even retained an architect to design its futuristic retail space. One grandiose touch: waterfalls to drown out the noise from computer fans.
>
> All told, Steuer and friends spent $710,000 building a business that never got off the ground. What's more, presentations of its business plan to more than 15 venture capitalists failed to produce a deep-pocketed backer.
>
> Says Steuer: ``The general reaction of Silicon Valley VC types was, `Why are you doing this brick-and-mortar stuff?' ''
>
> Eventually, the cash pot was depleted, the founders' credit cards maxed out and Cyborganic's illusory $200,000 still hadn't materialized. By last week, the company was being evicted from its high-tech digs. ``The landlord will only to listen (to promises that funding will come through shortly) for so many months,'' Steuer sighs.
>
> Despite the plethora of stories about Silicon Valley successes, Cyborganic's tale of woe isn't that unusual.
>
> ``We see 150 deals a month, of which we fund one,'' says DuBose Montgomery, managing director of Menlo Ventures, whose funds have seeded numerous start-ups, including UUNet Technologies Inc. of Fairfax, Va., and Infoseek Corp. of Santa Clara. ``So there are 149 deals that don't get funded, at least by us.''
>
> Montgomery, who wasn't familiar with Cyborganic, notes that many entrepreneurs think their idea is far more original than it is.
>
> Cyborganic's Steuer sees the herd mentality of financiers as having done in his company. ``The climate for financing stuff with anything like what we were doing chilled,'' he says, as content providers fell out of favor in VC circles.
>
> Like many would-be entrepreneurs, Steuer hasn't completely given up. He says he's ``simultaneously demoralized'' by the uncertainty of waiting for funding and ``really frustrated that we never got the chance to try something someone else will get to do.''
>
> Asked if he considered approaching financiers who specialize in retailing rather than information technology, he brightens and asks Chief Financial Officer Mark Beere if it might be worth approaching again some non-Silicon Valley venture capitalists. Beere dismisses the suggestion.
>
> ``I wish I could say I'll never do this again,'' Steuer says. ``But it ain't so.''
>
>
> Published Sunday, August 17, 1997, in the San Jose Mercury News
>
>
>
>
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