An ex-internet worker with very burnt fingers claims that the dot.com bombs were brought down by a Wall Street con. Sarah Left reports
Friday August 31, 2001
If someone offered you a job with a company that had come from nowhere to be worth billions within a couple of years, promised you millions of dollars in share options, and talked about changing the world with an e-commerce company, what would you do?
If you're David Kuo, and the year is 1999, you take the job and believe the promises. Kuo left a political job to begin working at ValueAmerica.com in May 1999, about six weeks after the company had floated on the stock market for $2.5bn.
A little over a year later, he had returned to Washington DC and the remains of the company's management team had called in the liquidators.
Kuo made not a penny from his ValueAmerica stock, but he might see some return from his new book on the subject, Dot.Bomb, a tale of greed, corruption and ultimately abject failure.
After Boo.com, the Industry Standard, and hosts of other dot.com collapses, the tales of gallons of champagne, company jets, private yachts, and personal political ambitions may sound familiar.
ValueAmerica.com was the brainchild of Craig Winn, an American businessman from Charlottesville, Virginia, who had an idea to build a company that sold everything from steaks to computers online.
He planned to sell the goods without the warehouses full of inventory that form a major part of the operating costs of most retail companies, thus making money by selling goods that ValueAmerica had never owned.
It was a clever idea, and investors threw money it.
At the height of the hype, Kuo quotes Winn as telling his colleagues:
"We are solving America's retail crisis! It is the biggest problem in the world. If we do this correctly we'll receive the Nobel prize - actually I'll get the Nobel prize, but I'll mention you when I get it."
If it all sounds like a case of greedy, valueless Americans, Kuo now agrees.
"In a lot of ways this was Lord of the Flies with other people's money," he said. He blames greed as a major reason for the company's failure.
"It struck me as being like a political campaign.
"Everybody was trying to speak to and appeal to different constituent groups: Wall Street investors, the media, business analysts. It's just that the goal of the operation was to increase our stock price rather than win votes."
Kuo says that he still has a good relationship with Winn and with most of the people he mentions in the book, despite the tell-all nature of the tale.
"Craig deserves to be held accountable for the downfall of the company, but Wall Street deserves the greatest part of the blame. Craig discovered that Wall Street had made new rules on how to value companies, then those rules changed."
While few of us will cry for the investment banks and venture capitalists who lost money in the tech crash, Kuo does not believe the whole dot.com debacle was a victimless crime.
The hapless folks at home, swapping shares in front of E*Trade on their home PCs, got it in the neck when the dot.coms bombed.
"The average retail stock trader read the hype and ultimately financed the wealth collection of those in the know," Kuo said.
Of course, thousands of employees across the US also paid when the dot.com companies collapsed under their own hubris.
Some of ValueAmerica's employees had borrowed money against their stock options, leaving themselves in debt when the redundancies came around.
Given the excesses of Winn and the investors, why did the company's employees actually believe the outrageous claims of untold wealth? Did no one feel sceptical?
"I guess we weren't smart enough," Kuo shrugs. "Americans are not by their nature all that analytical." The saga ends in the familiar way. ValueAmerica's assets were sold off for $2m in September 2000, and part of the mess is still before the courts.
Meanwhile Mr Kuo has returned to politics and is working for the White House. Craig Winn is living in Charlottesville, and Kuo believes he will start another company.
"There will be a company like ValueAmerica that is inventory-less and succeeds. Somebody will create what we could not. The time just was not right," he concludes.
Dot.bomb is published by Little, Brown and will be available from September 6.