Serialisation: eBoys - Part 3 - The eBay IPO

The third excerpt from eBoys, the inside story of Benchmark, looks at the VC firm's biggest success, e-tailer eBay, and the almost unbelievable story of its first day as a public company...

That night the institutional buyers took legal possession of the share, and the IPO was complete. Then the investment world waited to see the first trade the next morning.

Before trading commenced, Mary Meeker, Morgan Stanley's head internet analyst who had been beaten out in the bake-off with Goldman Sachs for the eBay IPO and who had every reason to withhold her approval, surprised Wall Street by issuing a report recommending eBay as an "outperform" (Onsale's Jerry Kaplan, when asked for his reaction to Meeker's enthusiastic praise of eBay's business model, predicted that eBay's revenues would disappear altogether, person-to-person auctions would go the way of email services and be available for free as a means to draw traffic to sites.)

When [eBay executives] Whitman, Omidyar, and Skoll returned to Goldman's trading floor at about ten-thirty on the morning of 24 September to witness the processing of the first trade, Lawton Fitt approached them and said, "You've got a good problem. We don't have any sellers." Three and a half million shares had been sold in the offering, and no one had yet volunteered to yield his shares up for a flip. "We're trying to find the range where we can find some sellers." It took another hour before the first trade was done, at $54. At that price, Whitman estimated that half the people in the company were paper millionaires.

For Benchmark, which had purchased its share of equity when the company's valuation was much lower ($20m) than it was when offered by the underwriters at the initial public offering price ($700m), the gains were even more dramatic. Unless the price collapsed over the course of the trading session, the value of Benchmark's original $6.7m stake in eBay was now about $416m.

During the previous week, Whitman had pressed [Benchmark VC] Kagle to join the eBay group in New York so he could be there, too, when "EBAY" crawled across the digital ticker for the first time. He had plane reservations set but at the last minute decided reluctantly to cancel, concerned that the CEOs of his other companies would think he had gone too far in giving eBay his attention, to the detriment of their own interests. Staying in Menlo Park, he fielded congratulatory calls all day from his entrepreneurs, who complained only half-jokingly that the eBay IPO set an "impossible bar" for the rest of them to best. He reassured each of them that their companies were sure to shine, too.

The Benchmark partners did not say much among themselves or exchange high fives. But when Bruce Dunlevie and Kevin Harvey, who were standing together by the assistants' workstations, saw Kagle come out of his office, the two extended their arms and bowed silently in his direction, in "We are not worthy!" fashion. Andy Rachleff walked by later and permitted himself an understated confession: "I'm feeling a little giddy."

Kagle and Dunlevie's administrative assistant, Marissa Matusich, felt extremely giddy. Her exultant screams kept the office apprised of eBay's trading prices. When a friend called her, Matusich already had done the arithmetic. "Meg is worth a hundred million and the entrepreneur seven hundred fifty million!"

From New York, Whitman called her husband at the Stanford hospital.

"Is there a Quotron [stock info terminal] handy so you can see what's happening?"

"No, Meg, there's no Quotron." He didn't seem keen to find one either. "I'm doing brain surgery in a moment."

Keith Krach, Ariba's CEO, called Kagle to offer congratulations. What was eBay worth now? "One point eight bilski," Kagle reported.

"That sets an awfully high bar," said Krach.

"Your day will come, too."

Odds were against any other company coming close to eBay's performance, however. At the end of the first day, the share price had held up, it closed above $47, giving eBay the fifth-highest first-day gain in the market's history.

Down in San Jose, eBay employees abandoned their cubicles and formed a giant conga line, a snake of conjoined, joyous, singing, delirious adults that wound through an ordinary-looking office in an ordinary smallish office building in an ordinary-looking business park.

In New York, Whitman, Omidyar, and Skoll looked on as the NASDAQ ticker showed a market now wholly consumed by trading of this stock, all ten visible slots on the electronic ticker filled identically:

EBAY...EBAY...EBAY...EBAY...EBAY...EBAY...EBAY...EBAY...EBAY...
EBAY...

In San Jose delirium reigned for almost two hours. As the building rocked, another tenant called to complain and demanded to speak with the director of facilities. "He can't come to the phone right now," the receptionist apologized. "He's drunk." (This was the receptionist's little joke, the company was still too small to have a director of facilities.)

The eBay contingent in New York flew back and the next day came up to Benchmark's office for an informal celebration with the partners and staff, munching snacks and sipping champagne on the terrace at the end of the day. Dunlevie and his colleagues embarrassed Omidyar with we-are-not-worthy bows. Omidyar and Skoll were effusive in thanking the Benchmark guys for their contributions. Whitman entertained everyone with stories of the road show, of New York, of handling the calls of congratulation - and of not wanting her sons to know about the money. Anyway, "It's all paper."

Whitman's former boss at Hasbro had just called her. When she'd resigned fewer than nine months before, he'd told her that he couldn't fathom why in the world she would leave Hasbro for an unknown, on the other side of the country. Today he had called her and said, "Now I get it."

Serialisation: eBoys - Part 1 - Go Big or Go Home
http://www.silicon.com/a52473
Serialisation: eBoys - Part 2
http://www.silicon.com/a52518

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