__ Sabeer Bhatia started his company on $300,000 and sold it two years later for $400 million. So, is he lucky, or great? __
From the first moment I met him, Sabeer Bhatia has given credit to the power of the idea. The idea was so powerful that when his friend and coworker Jack Smith, who was driving home to Livermore, called Sabeer on his car phone to brainstorm the pregnant thought that had just occurred to him, Sabeer heard one sentence of it and said, "Oh my! Hang up that cellular and call me back on a secure line when you get to your house! We don't want anyone to overhear!"
It was so powerful an idea that when Jack Smith did call Sabeer back 15 minutes later, their minds melded as they talked, completely in sync, leaping from one ramification to the next as simultaneously as the steps of two soldiers marching side by side. It was so powerful that sleep that night was impossible for Sabeer Bhatia, with the idea now in his head, exploding, autocatalytic, a bonfire of the mind. He stayed up all night writing the business plan, which he brought to his day job the next morning to show to Jack, looking so haggard that his boss stopped him and said, "You've got to cut out the partying, Sabeer," and Sabeer - afraid the idea might pop out of his mouth if he opened it at all - just nodded. He was afraid even to make a single photocopy of the plan he had printed out, lest a stray page find its way into the recycling bin and then into someone else's gaze.
This idea was so inspirational because it seemed like an idea anyone could have. It sent the message and CC'd the entire world: To make it here in Silicon Valley, you just have to come up with the right idea. You don't have to know the right people. You don't have to demonstrate proven experience. Just have an idea.
That was in 1995. Nowadays, meet Sabeer at a party and ask what he does, and, just like hundreds of thousands of other young people in the Valley, he will tell you only that he works in high tech. Push him for more detail and he'll say he works at Hotmail. Ask if he's an engineer and he'll say no, he's the president. He's not being reclusive or coy - it just hasn't sunk in that he might be special.
This fall, Sabeer Bhatia invited me to sit in on one of his Tuesday-afternoon strategy sessions with his senior managers. We met at his headquarters, in the asphalt jungle of Sunnyvale, California, in an anonymous low-slung office building. Sabeer is just 29 years old and has a very regal air - a deep listener. He doesn't interrupt and he doesn't interrogate or flex his power - if he wants to raise a contrary opinion, he will utter benevolently, "Does anyone question that the search box should be on every page?" Gentle giant. He wears chambray shirts over a stocky frame, and metal-rimmed eyeglasses.
In just under two and a half years, Sabeer has built Hotmail's user base faster than any media company in history - faster than CNN, faster than America Online, faster even than the audience grew for Seinfeld. Truly mind-boggling. Hotmail provides free Web-based email directly to consumers; with 25 million active email accounts, the company has been signing up new users at a rate of 125,000 a day. Sabeer's company is in fact the originator of Web mail and the runaway leader in the English language. On the second to last day of 1997 - his birthday - Sabeer sold his start-up to Microsoft, and with Microsoft's financial muscle, Hotmail's juggernaut appears unstoppable.
From the various managers at the Tuesday meeting, I learned about a new search engine and an ecommerce plan, instant messaging, and a sign-on system that could be leveraged online much as DOS and Windows are leveraged on the desktop. The room was aglow with the anticipatory thrill of riding this bullet train up the exponential revenue curve.
Later, Sabeer and I had a drink at his apartment in San Francisco's South of Market area. Bayside Village is a four-story, three-dimensional crossword puzzle of boxy apartments. His humble apartment has a bachelor-pad decor, with unadorned white spackled walls, a framed print leaning against the living-room wall, a rug rolled up off to the side. His living room has a 180-degree panoramic view of other units, but if you stand in one particular place and stretch your neck, you get an actual view of the shallow end of the communal pool. It's definitely not the place I expected from a man who's worth more than a hundred million dollars.
Why hasn't he bought a house? Is it that he hasn't had time to look?
"They're just all so overpriced. I think I'll save a little money if I wait until they come down."
The mold has been broken.
Every preconception of what it takes to lead a company has been shattered by the Internet culture - and there is no better example of this truth than Sabeer Bhatia's rocket to stardom.
Just over 10 years ago, on September 23, 1988, Sabeer arrived at LAX at 6 p.m. His flights from Bangalore, India, had taken 22 hours, and he was starving. Caltech, which had offered him a very rare transfer scholarship, had sent him directions that said, merely, "Take a shuttle to campus," but Sabeer didn't know what a shuttle was.
He was 19. In his pockets he had $250, the limit Indian Customs allowed a student to take out of the country. He didn't know a single person in all of America - but he had something, maybe the x-factor gene, that drew him here.
Maybe it was that same x-factor gene that later compelled him, as an engineering grad student at Stanford, to go to the brown-bag lunches in the Terman Auditorium basement, where Steve Jobs and Scott McNealy and so many other entrepreneurs hammered home the message, "You can do it, too." He caught the bug. Later, buried in cubicles, working first at Apple then at a start-up called Firepower Systems designing Power PCs, every morning Sabeer would come to his pal Jack Smith and tell him yet another story of some guy who'd sold his company for millions. "Jack! What are we doing here, wasting our lives!?"
So in August 1995, Sabeer began shopping around a business plan for a Net-based personal database called JavaSoft. This would become, in effect, the front for the Hotmail idea. With venture capitalists skeptical of the software market - it was too hard to get good distribution and rise above the fray - JavaSoft wasn't likely to fly, but Sabeer kept showing the plan, and saving Hotmail for those VCs he'd tested and respected. Hotmail was such an explosive concept, Sabeer didn't want a less-than-ethical VC to reject him, then turn around and copy it. In order to keep the Hotmail idea under wraps, he and Jack Smith even put the JavaSoft name on the front door of their first tiny office in Fremont, California.
"It's almost embarrassing to admit," says Jack. "We thought we'd make money on the JavaSoft product while we evolved this new thing."
Sabeer's first presentation to Steve Jurvetson of Draper Fisher Jurvetson didn't start off well - Jurvetson was having the same problem with the database idea every other VC was. So, late in the hour, Sabeer was forced to play the Hotmail card. He mentioned it, ever so subtly, characterizing it as a marketing tool. ("Everyone who used Hotmail would wonder how we built it and come buy our JavaSoft tools.") Jurvetson wasn't fooled - he saw the pot of gold.
Is Sabeer lucky, or is he great?
Jurvetson remembers: "He brought in these revenue estimates showing that he was going to grow the company faster than any in history. We dismissed the projections outright, but he insisted, 'You don't believe we're going to do that?' He had hallucinogenic optimism. He had an unquenchable sense of destiny. But he was right. He grew the subscriber base faster than any company in the history of the world."
One might have presumed that since Sabeer had been rejected by 20 previous VCs and was virtually a nobody, he was grateful to accept Draper Fisher Jurvetson's $300K on their terms. "He's the most interesting negotiator I've ever met," Jurvetson says. Tim Draper made the perfectly reasonable offer of retaining 30 percent ownership on a $1 million valuation. Sabeer held out for double that valuation - their cut, 15 percent. The negotiations got nowhere, so Sabeer shrugged and stood up and walked out the door. His only other available option was a $100,000 family-and-friends round that Jack Smith had arranged as a backup - not nearly enough money. "If we'd gone that route, Hotmail wouldn't exist today," says Jack.
Draper and Jurvetson relented; they called back two days later to accept their 15 percent. And Sabeer and Jack stretched that initial $300,000 all the way to launching the service before needing a second round. On the day they launched, July 4, 1996, the pair wore beepers on their hips to flash the number of subscribers every hour.
The product spread like the Ebola virus, each email being, in effect, an advertisement to its recipient for the service. Sabeer received a second round of financing from Doug Carlisle at Menlo Ventures. It was six months before the first tiny competition appeared. It was nearly a year before Four11's RocketMail was launched. "By the time Microsoft figured it out," Sabeer says, "we had 8 million users."
When Microsoft came bidding in the fall of 1997, they came as a small army. Six at a time, they flew down from Redmond and sat in Hotmail's small conference room across the table from Sabeer. They offered a figure, something that would have put tens of millions of dollars in Sabeer's pocket. Sabeer rejected it, and they stormed out. A week later they were back, and every other week thereafter for two months. They flew him up to Redmond to meet Gates and have a little get-friendly conversation. At that point, it's easy to see it all as funny money - when you've got a week to think about it, it's hard to really see the difference between 50 million and 60 million. Are you really going to risk losing the deal for another 10 million?
Two stories floated around Hotmail as the talks went on. The first was that in AOL's early days, Steve Case had spurned a buyout offer from Bill Gates and gone on to grow it into a multibillion-dollar valuation. The second story was about PointCast, which had rejected a $400 million bid from Rupert Murdoch's News Corporation but never made its technology pervasive on its own.
Sabeer took a straw poll among his investors to see what price they might be able to anticipate. Doug Carlisle's figure was the lowest: $200 million. Privately, Sabeer had half-jokingly been saying he wanted a billion dollars, so he challenged Carlisle's figure: "You don't think we can get more than that?"
Carlisle laughed and rolled his eyes. "Sabeer, if you ever reach even my figure, then I'm going to build a life-size bronze sculpture of you and put it in my front lobby."
Sabeer went back to Microsoft and asked for $700 million. "You're crazy," the negotiators shouted, followed by a few expletives. "You're out of your mind! You've blown it!"
But Sabeer knew those were only tactical outbursts. As a kid in Bangalore, he had watched family servants haggling over groceries at the bazaar. He knew every trick. At the bazaar, vendors would counter a low offer by saying, "Oh, I'm sorry, is that all you can pay? You must be very poor. I want to give you a few rupees out of my own pocket so you have enough money to pay."
Tensions rose as Microsoft piled cash on the table. $200 million. $250 million. Carlisle took to saying, "It's statue time!" $300 million. This negotiating squad seemed to have deep knowledge about RocketMail, Hotmail's competitor, and it was possible that Microsoft was negotiating to buy RocketMail as an alternative. Or maybe they just wanted to scare Sabeer, to make him think Bill had another option. Sabeer, who had the go-ahead from his board and his management team to negotiate the deal himself, stood firm: no sale. Several times, Microsoft's negotiators stormed out. Even with the talks secret, Hotmail's employees twice pressured Sabeer to accept the most recent offer and guarantee their security. Sabeer's venture capitalists, who stood to realize gigantic returns on their investments, urged caution.
But negotiating alone allowed Sabeer to present a unified front; it prevented Microsoft from taking Jack Smith to dinner and saying, "Jack, you've got a wife and a kid - c'mon, they'll be set for life." But Sabeer wasn't psychologically alone - his backers and colleagues kept the faith. VC Steve Jurvetson joked with Sabeer, "You don't have to sell now. Why don't you wait until you're big enough to buy Microsoft, rather than them buying you."
All the while, Hotmail kept signing up subscribers.
When Gates offered $350 million, Sabeer's management team took a straw poll in favor of accepting. Now he really was alone.
"Saying no to so much money was the scariest thing I ever did," Sabeer says. "Everybody had told me, 'This is on your head if you screw it up.'"
On New Year's Eve 1997, the deal was announced. Sabeer is forbidden to publicly reveal the price, but the S-3 registration filed a month later stated that the ownership of Hotmail had been exchanged for 2,769,148 shares of Microsoft - at the time of the deal, worth a walloping $400 million.
Throughout the Valley, the gut reaction was shock: No way was the company worth so much. $400 million? For just email? Who the hell was this kid Sabeer Bhatia, and how the hell did he do it?
A year later that price looks cheap, particularly considering that Hotmail has more than tripled in size since it was purchased.
"In retrospect," says Steve Jurvetson, "I'm not sure that a billion dollars wasn't the right figure."
Everyone around Sabeer Bhatia thinks he has proven himself a unique individual. "Best of class," says his partner, Jack Smith. "He gives off the most tremendous vibe of passion," says Montrese Etienne of McLean Public Relations, which Sabeer convinced during the early days to accept Hotmail stock in exchange for its services. "Sabeer may have an ordinary background," says Doug Carlisle of Menlo Ventures, "but he's an extraordinary individual."
Sabeer's mentor, an angel investor named Farouk Arjani whom Sabeer met at a Valley organization called TIE (The Indus Entrepreneurs), describes him like this: "At first I was amused by him. What set Sabeer apart from the hundreds of entrepreneurs I've met is the gargantuan size of his dream. Even before he had a product, before he had any money behind him, he was completely convinced that he was going to build a major company that would be worth hundreds of millions of dollars. He had an unrelenting conviction that he was not just going to build a run-of-the-mill Silicon Valley company. But over time I realized, by golly, he was probably going to pull it off."
These people have every confidence that if Sabeer were not here in Silicon Valley, he would be leading people somewhere. But Sabeer believes he's damn lucky to live in this place and time. "Only in Silicon Valley could two 27-year-old guys get $300,000 from men they had just met. Two 27-year-old guys who had no experience with consumer products, who had never started a company, who had never managed anybody, who had no experience even in software - Jack and I were hardware engineers. All we had was the idea. We didn't have a prototype or even a dummied graphical interface. I just sketched on his whiteboard."
Not the case where he comes from. In India, Sabeer's mom worked her entire career at the Central Bank; his father spent 10 years as a captain in the army, then became a manager in several public-sector hierarchies. That was what life offered him. In India, kids like Sabeer grow up assuming that starting a company is impossible unless you're superhuman. Too much corruption and political risk undermine investor confidence in new ventures. "Here," says Sabeer, "you have a three-year moratorium on Internet taxes for electronic commerce. In India, ecommerce is actually illegal because of the 1885 Indian Telegraph Act, which forbids using telecommunications for profit. An 1885 law? Can you believe it?" His parents were horrified when he quit Apple, where they truly expected him to work for at least 20 years.
But Sabeer got swept up in the decade's fever: You haven't lived until you've gone solo. After a few years in the Valley, Sabeer discovered that the really successful businessmen were just ordinary guys - smart, but not unusually so. If they could do it, he could, too. And every day, at every turn, he got someone to buy into his vision. The first 12 Hotmail employees signed on entirely for stock, forgoing salary - not very common in the Valley, where the unemployment rate is nil.
Now think again of Sabeer's simple apartment in Bayside Village's plasticized neighborhood. See it in its psychological light: a reminder that he is the same person he always was, that he hasn't lost himself, that his values are in the right place.
At night he sits at home, reading the industry trade magazines, trying to digest the chaotic splendor of the Internet. That's his pipeline of strategic info. Just magazines, the same magazines you can buy. Available on any newsstand.
Sabeer even talks about Bill Gates, ordinary guy. "He is! He's human," Sabeer says. "He's very smart, but not superhumanly so. I remember meeting him the first time up in Redmond. I was nervous, and I spoke for too long. Then Bill started asking questions. They were normal strategy questions, the same things I'd been asked by investors all along."
Doug Carlisle is holding true to his word about the bronze statue - a bust has been commissioned by an artist in Los Angeles. It's such an odd thing - celebratory of the individual rather than the company or the Internet. But Carlisle commonly offers his entrepreneurs such gifts when they reach milestones - a Porsche Carrera, say, or "If you make that, I'm going to kiss your shoes."
If anyone deserves it, I guess Sabeer does, but doesn't it make him uncomfortable? No. "It is an honor. My hope is that, just as I was given inspiration at those brown-bag lunches in Terman Auditorium, when entrepreneurs come into this most prestigious address on Sand Hill Road, it will give them inspiration."
As of this writing, Hotmail has 144 employees, and it is one subdivision in a Microsoft superdivision called Web Essentials. Hotmail will move from its offices in Sunnyvale to a new Microsoft campus in Mountain View, where it will be joined by WebTV. Sabeer now reports to someone who reports to billg, and he flies to Redmond almost every week. His task as he has always seen it - getting his employees to believe that this company is theirs - is now a changed proposition. It's a harder story to tell, more complex to buy in to. "A different kind of person is optimized for this corporate environment," he explains. "The ideally suited person is career minded. Someone who can think for the department."
In the Tuesday management session I visited this fall, the topic of new business cards came up. The representative product manager from Microsoft said, in a remarkably matter-of-fact way, "It's really better if you don't put 'Hotmail' on the cards. Just put 'Microsoft.' Then, when you move around between divisions, which happens a lot here, especially with all the reorgs, you don't have to print new cards." And Sabeer had to just hold his poker face and avoid a grimace, knowing that he has to take such salt along with the sugar.
At breakfast one morning I asked Sabeer if he felt at all powerful, considering that he runs the world's fastest-growing media company. "That is such an odd, foreign concept to me," he said slowly, trying to think in that old paradigm. "When you say 'power,' that conjures to me control, such as having people do what I want them to do. It is just absurd. It is the nature of this medium that if something is a success, it is wildly successful."
The last time I saw Sabeer Bhatia, it was 1:50 a.m. on a Monday, and he was boarding a Korean Air 747 to start a 24-hour flight halfway around the world - first to Seoul, then on to Bombay. He would meet with business leaders in Delhi and later deliver a speech at Internet World there.
Sabeer had thought hard about what he wanted to say to the country he left 10 years before. (He had gotten his green card only a few months before launching Hotmail.) He wanted to talk about how India might be transformed. The level playing field of the Internet had convinced him that in the future, young, ambitious people won't have to leave home: "India is ready for the Internet revolution. In India, just to open a little restaurant, you have to get 18 permits, but you don't have to get a permit to start a business on the Internet."
Sabeer's vision for India involves TV. First, install a fiber-optic cable from London to Bombay. Second, use TV cable networks to provide local access points. Third, make available a sub-$50 Net device, somewhat like WebTV's. He estimates the project would take about $200 million to pull off.
It is a gargantuan vision, and it is based on the premise that his own greatness does not exist. Sabeer has convinced himself that he's just a product of Silicon Valley, and the very fact that he is dreaming such an extraordinary-sized dream doesn't even trigger the cognition that maybe he's just a tad more visionary than others.
"It's a herculean task," he admitted to me, "but the prospect of changing the destiny of a country motivates me."
I was witnessing what everyone said of the early days of Hotmail - Sabeer's unquenchable sense of destiny, his nearly hallucinogenic optimism. As a story, it amused me. It was easy to interpret his enthusiasm as a self-induced late-night fancy that would downgrade from quest to cocktail-party conversation in a few days. It was easy to look at it through the Freudian lens: Man returns home for his 30th birthday intent on saving other young men from the scar of having to choose between family and self.
But he was right that India is still a sleeping lion. Sabeer seemed tenacious about it. He'd set up numerous meetings with various officials, and after he had boarded the plane it occurred to me that, really, what the hell did I know? Wasn't it possible that I was watching history at its inception? I thought, "By golly, he might just pull it off." After all, it's a good idea.
