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January 1, 2001

DotCom Divas

Female entrepreneurs join the dot-com explosion to start their own successful pure-play Internet companies, based on some great ideas

By Elizabeth Carlassare

Illustration by Amanda Duffy
More on women in IT:

Time Is Right For Women In IT (10/13/00)

TechWeb: Women Steer Online Auto Sales (11/10/00)

TechWeb: Internet Battle Of The Sexes Narrows (11/10/00)

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he dot-com explosion of the late '90s saw the emergence of a significant number of female entrepreneurs who spawned successful pure-play Internet companies from the spark of an idea.

In DotCom Divas, which hits bookstores this week, Internet strategist Elizabeth Carlassare profiles 20 such women. While some of their sites have been hit by the hard times afflicting so many dot-coms, we bring you portions of four profiles of women whose sites are still, by all accounts, in very good shape:

o Search engine LookSmart.com president Tracey Ellery got the idea for the site she co-founded with husband Evan Thornley when she was pregnant with twins and housebound in their Australia home in 1995. She found tooling around the Web a chore, even then. We follow LookSmart's funding roller coaster after it got an early $1.2 million from Reader's Digest, whose chairman Thornley knew from a previous business relationship.

o Edgar Online CEO Susan Strausberg and husband Marc had experienced the laborious process of accessing Securities and Exchange Commission filings by businesses when, in 1995, they thought of Webifying those filings for all to see easily. We learn of the marketing maneuvers that have helped make Edgar Online the prime source of those filings it is today, after the Strausbergs used their own savings to start the site.

o Marimba.com co-founder, chairwoman, and chief strategy officer Kim Polese and three fellow engineers made names for themselves by helping develop Java at Sun Microsystems. They left Sun in 1996 to start what became Marimba, a provider of Java-based Internet infrastructure.

o Felicia Lindau, Sparks.com founder and CEO, got the idea for a site offering paper greeting cards while driving one summer night in 1997, after having bought a last-minute birthday gift for her mother on Amazon.com. The rest, as they say, is Web history.

TRACEY ELLERY

Ellery and Thornley were acutely aware that they needed to move fast. They knew that even a great Net product or Web site that hits the market too early or late can easily fail. Their solution was to outsource whenever they needed to accomplish something and didn't have the necessary in-house resources. "We used technical consultants so we could get moving on projects fast, even if we didn't have the staff in place to do so," says Ellery. "Even now, we'll orchestrate any outside resource if that's what it takes to get the right thing done quickly."

As a result of this strategy, the LookSmart Web site launched just six months after the prototype debuted. While traffic to the site was growing dramatically, Reader's Digest's own fortunes were souring, and it couldn't continue funding the upstart. On top of this, Reader's Digest refused to let Ellery and Thornley raise capital from other investors because it considered LookSmart too strategically important. So LookSmart treaded water as Ellery and Thornley watched their well-funded competitors grow and go public.

In 1997, new management stepped in at Reader's Digest, informed Ellery and Thornley that LookSmart was out of business, and requested an estimate of shutdown costs. "In retrospect, we really should have gone to California and raised classic venture capital very early on," acknowledges Ellery. But they weren't willing to let their business die so easily, so they proposed an alternative: If Reader's Digest would let them buy LookSmart back on no-cash terms, they would finance it themselves and assume its debts.

An ailing Reader's Digest agreed, and Ellery and Thornley bought back equity in LookSmart. But with no investor, they were in a pinch. They had recently opened up an office in San Francisco and moved their top managers and their families there to center LookSmart squarely in the midst of a main Internet business hub.

And they were running out of cash. "We were the proud owners of the No. 903 Web site in the world when we bought it back," remembers Ellery. "We were burning $650,000 a month and had only 75 days worth of cash in the bank--all of which was spoken for by creditors."

Boomeranging back. The duo courageously set out to raise Sand Hill Road venture capital. By this time, though, leading portal sites such as Yahoo, Excite, Lycos, and Infoseek had already gone public. VCs had invested in their fill of search engines and directories, and viewed LookSmart as a Yahoo copycat that had missed the boat.

Fortunately, they were able to use small amounts of money from Australian investors to tide them over. "It was the worst time," says Ellery. "We had no experience raising venture capital and few contacts in the States. We came within two days of missing payroll six times."

Nonetheless, LookSmart's many partnerships and growing traffic volume eventually made it attractive to major content players, and after eight months of barely scraping by, Ellery and Thornley raised an $8 million round led by Cox Interactive Media. After that, raising money got much easier as the company's momentum picked up. Just three months later, they raised a $60 million mezzanine round--one of the largest investments for a private Internet company at the time.

LookSmart's pre-IPO investors were captivated, among other things, by how quickly the site was climbing the Web rating charts. Their capital infusion helped fuel the company all the way to a spot among the top 20 Web sites, and it enabled the founders to make key strategic acquisitions, expand their overseas offices, and launch a $20 million ad campaign to further establish the brand.

Although other major broad-based portals had gone public before LookSmart, the company's August 1999 initial public offering was a shining success despite the lackluster IPO market at the time. Shares were priced at $12 and jumped 44% to $17.50 by the end of their first day of trading, raising $92.5 million and making Ellery and Thornley paper multimillionaires overnight. (They own 15% of the company, which was valued at $1.8 billion at the end of the first trading day.)

The company's post-IPO stock market success enabled it to continue attracting and hiring taxonomists, editors, and subject-matter experts, even in an overheated labor market in which most job seekers were on the lookout for the next hot prepublic startup. "For most of our current employees, the value they're realizing from their stock options each year exceeds their salaries," says Ellery.

SUSAN STRAUSBERG

Traffic to Edgar Online grew quickly as word spread among investors. "After we launched, every night was like Christmas Eve. We'd get up in the middle of the night and look to see who had registered. I'd say, 'Look, there's someone from Japan and another from Alaska,'" recalls Strausberg with a smile. Soon there was no elbow room left in the room above the garage. The company was up to seven employees when the Strausbergs decided it was time to get real office space and moved to their current headquarters in Norwalk, Conn., which now houses more than 50 Edgar Online employees.