A History Of Malfeasance – Turn of Century #DCTech Part 1
It was May, 2003. I had just finished my first “turnaround” as the President of Astracon, a Denver-Colorado/Brisbane-Australia-based company that had raised over $70 million from Cisco Systems, Geocapital Partners, The Edgewater Funds, Cross Atlantic Capital Partners and Australasian Media & Communications Fund. We sold the assets of that company with a less than stellar result. In the end, the investors realized a $2 million return on a $70 million investment. I was pretty sure that was my last “turn-around.”
Looking back on Astracon I’d blame the poor results on sub par execution, specifically, a lack of attention to results, an inattention to culture which resulted in division and distrust between teams, constant shifting focus, and way too much money too soon. There was no maleficence.
With that behind me, I moved into the consulting phase of a Turn-Around exec. Consulting phase? One thing I learned doing turnarounds is you spend a lot of time as a “consultant.” You know what a consultant is right? That’s a thing you do in between jobs.
So during my “consulting” time, I was lucky enough to land a non-paid, room-and-board-only, consulting gig as a crew member on Atlantica. A $1.5 million, Hinckley Southwester 42 making its way from its winter home in Annapolis Maryland to its summer home at Seal Harbor, Maine.
Speaking of maleficence, the first day we sailed up the bay and anchored for the night before entering the Chesapeake Delaware Canal. The next morning we exited the canal and entered the Delaware River and as we opened up our sails to catch the wind, the two bone heads (I’m bone head number 1 and I’ll protect bone head #2 who was behind the wheel while my job was to say….. “Hey! Watch out for that F#*king sand bar) were so exhilarated by the emergence of significant sailing wind, we missed the sandbar on which we landed…. and we were stuck there somewhere around 8 hours until the tide went all the way out and came all the way back in. That’s maleficence (see the title photo).
That night we anchored nearby. On day three we sailed and anchored overnight in Cape May Harbor. The next day we sailed night and day up the coast of New Jersey. Running shifts of three hours on watch and three hours off. As we entered New York Harbor, about 10 minutes after sailing under the Verrazano Narrows Bridge, my mobile rang.
I groggily answered, “Hello (because that’s what I say when I answer the phone, pre-smart-phone and caller ID and I’m groggy)?”
Voice on the other end of the line, “Hi Glen, It’s Richard Fox (Richard was a former fellow board member of Astracon and a General Partner at Cross Atlantic Venture Partners).
Me, “Hey Richard, how the heck are you?”
Richard replied, “Glen, you know I was happy with how you handled things at Astracon. I have another challenge with one of my Portfolio companies. I’d like to talk to you about joining the board of Ikimbo.”
And that’s when I was introduced to one of DC’s former Darlings…. Ikimbo.
Ikimbo was founded in 1999 by one of DC’s first real Digital Visionary Entrepreneurs. Jamey Harvey. I didn’t meet Jamey till later but he’s one of the smartest guys I know. He’s a legitimate “DC Tech” Pioneer who founded one of the world’s first internet online gaming companies; Digital Addiction. Ikimbo was spun-out from Digital Addiction under the stewardship of Harvey. By the time I was introduced to the company, Ikimbo had seen better days, was on its third CEO and had burned through $20 million in venture capital from companies including but not limited to:
- William Blair Investors – JB Pritzker of the Hyatt Hotel Pritzker Family was the person on the board that represented Blair. JB went absent on the board as the Pritzker family all were embroiled in a probate lawsuit.
- Draper Atlantic – A DC VC that has now morphed to New Atlantic Ventures led by John Backus. Thanasis Delistathis was the partner on the board of Ikimbo
- Schoffstall Ventures – Headed by Martin Schoffstall, co-founder of one of DCs first internet billionaire companies, PSINet
- Riggs Capital – The Venture Capital arm of the most powerful bank in DC at the time
- Cross Atlantic Capital Partners – Glenn Rieger and Richard Fox were the partners on the board for Cross Atlantic
In 2003, Cross Atlantic had become the dominant investor with two board seats. Draper Atlantic, Schoffstall and Riggs stakes were diluted and converted from preferred shares to common.
Sometime in June, I sat in my first board meeting and listened to the then current CEO aw he presented an acquisition offer which was tons of mumbo jumbo that in effect was a give away of Ikimbo to a company called DDLabs for no cash and an unlikely but possible earn-out that would make the investors rich… if they would only suspend belief and reason. There was little to any upside to any stockholders on that deal.
After some questioning, the CEO made a veiled, suicidal threat… “If you don’t go through with this deal, I’ll quit.”
Bad move… when the board went into executive session (the part of the meeting where attendance is non-corporate officer/executive board members only). It took about 15 minutes for the board to decide that we weren’t doing the deal and that the CEO was not going to have the opportunity to quit. The board unanimously voted to fire the CEO. So the CEO was made available to industry and Mr Cranky drew the short straw. I now realized why I was invited to be on the board. I was the new CEO tasked with figuring out how to get this baby off the ground.
Flush with $2 Million in new capital (the current investors committed to invest $2 million upon my becoming the CEO and yet 1.6 million was to pay off debt incurred by the clown that was my predecessor). I began to dig into the company. What I found was eye opening. The company had virtually no revenue in its four years of operations, little to show for its $20 million in cash. Some very questionable contracts, contractors, acquisitions and side deals.
In July of 2003, I was flying an over-burdened, underpowered aircraft named Ikimbo that had a very short runway for take-off.
Next week, we’ll dig into unethical contracts, questionable decisions and one of the sleaziest DC operators to ever call himself an entrepreneur. Find out what I found in the former CEO’s email.