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Bath, England
Nothing got in the way of a good investment return more than an entrepreneur with anger management issues and a sense of entitlement. Early venture capitalists might have missed this point. Yet their management committees never forgot. Too many investments cratered because a good idea proved to be insufficiently good or there arose a problem in execution, branding, or effectively managing growth. Then there were the great ideas and brands brilliantly executed and managed that unraveled with an act of domestic violence, drug and alcohol abuse, or a pattern of driving while under the influence. The enduring lesson: Vet the entrepreneur. Elsemere Assessments provided this service.
Elsemere Assessments’ global headquarters operated out of a stately residence located on the big hill connecting the city of Bath to the university of the same name. The decidedly upscale neighborhood digs and unassuming office staff belied the true nature of its work.
People did not walk in to Elsemere to place their orders or make their inquiries. In fact, none of its clients in the five-year history of the firm ever paid a personal visit. All prospective clients called or sent an email to a corporate address. Prospects did not become new clients unless an existing client made the referral. Repeat clients conducted business with Elsemere by video conference using highly encrypted and secure communications links. Telephones didn’t ring. Conversations weren’t overheard. There was not a shred of paper, a folder, or a single file cabinet in the office. All correspondence was exchanged electronically, stored in the cloud—again, using the highest levels of encryption, far beyond that used by financial institutions and almost all government agencies.
Elsemere’s researchers conducted assessments of the entrepreneurs and principals of the emerging firms in which a VC might invest. Poor assessments usually forecast loss of the investment, or a subpar return—so no investment. VCs investing despite a researcher’s recommendation to the opposite incurred a substantial risk, like investing in a road-side bomb guaranteed to explode. You just weren’t sure when the bomb would detonate. The resulting explosion inevitably rendered a VC’s investment worthless.
Joseph Lincoln McRory was only one of Elsemere’s researchers, all of whom were former intelligence agents—some, but not all, having served the U.S. Government. The one thing this rather unique group shared: None knew the existence or identities of the others. They were all independent contractors. They worked anywhere but Overland Park and they were scattered throughout the U.S., Europe, Israel, and Australia.
What distinguished the work product of Elsemere was the depth and quality of their assessments. Their researchers weren’t bound by the privacy laws of any government. Indeed, no one’s secrets were beyond the reach of an Elsemere researcher. After all, the governments who selected and trained these former agents had an overwhelming regard for outcomes and everything else was just not an issue.
Former agents knew companies like Elsemere existed. During their active agent years, their respective brotherhoods informally shared information about this market and its need for agents who no longer practiced the tradecraft expected by their respective government sponsors. Think of it as an informal retirement plan only available to former agents. The governments knew about these organizations but did nothing to stop their recruitment efforts. After all, safeguarding the privacy rights of its citizenry was just not a part of their respective charters. Just the opposite, in fact.
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Overland Park, Kansas
McRory checked his personal portal operated by Elsemere on the dark web. Access required both a special web browser and an invitation to access restricted areas, or domains. Originally, the province of drug dealers, human traffickers, weapons merchants, and underground bazaars where almost anything can be purchased, Elsemere’s network remained difficult to spot and even more challenging to monitor. Search engines, like Google and Bing, were of no use on the dark web. Users of the dark web knew where they were going before clicking on a web browser.
Once connected and authenticated to the Elsemere’s servers, McRory could read his correspondence, or mail, and update the status of his “in progress” assessments, submit expense reports, and direct Elsemere’s payments to him to the financial institutions on the company’s approved list. He could also secure legal representation or bail, if he’d been apprehended while gathering data for an assessment. Unfortunately, making a request for help meant he’d been apprehended violating privacy laws, appropriating someone’s identity, or trespassing and always marked the end of the relationship. Elsemere’s researchers were cultivated over time and always selected for their stealth.
Today, McRory’s mail produced the notice of a new assignment. VeriWard, a start-up located in Chicago, was attracting the attention and possible funding by an early round of VCs. Users of the VeriWard smartphone app received notifications when nearby retailers advertised goods and services identified by the smartphone owner. Looking for a great price on Cannondale’s Jekyll mountain bike? Walk by the high-end bike store and your smartphone grabbed your attention directing you into the store with an electronic coupon at the ready. Retailers liked targeting their advertising dollars directly to motivated buyers skipping over the larger population who had little or no interest in an overpriced toy for wannabe athletes. Buyers were willing to figuratively raise their hands and volunteer to buy expensive things.
VeriWard’s data scientists took the preferences of high-value buyers and merchants, the geo-locations of both, and blasted what they termed “mating calls” via the cellular telephone network. Their “hit rate” started low, but with time and better analytics, an advertiser was likely to sell a product in a mating call six times out of ten. Traditional modes of advertising couldn’t come close. So VeriWard charged a premium for their services, and unlike most start-ups, they were profitable—very profitable. But they needed additional funding to expand to other major metropolitan areas. Growth was expensive and the VCs were interested and wary.
VeriWard’s founder, Todd Adams, presented a bio rapidly becoming a standard for new entrepreneurs. A graduate of Stanford University, Adams spent the first several years of his post-graduate career working for Apple, then Google, and finally, Yahoo as a product manager. When Melissa Mayer assumed the helm of Yahoo, she brought with her hope and enthusiasm for a once pre-eminent high tech company that, like a deflating balloon, was no longer flying high. Great promises aren’t always fulfilled, however. Yahoo continued to stumble, and bright product managers within saw the handwriting on the wall. They bailed. Or, they were pushed out of the nest by Mayer as one strategy after another proved ineffective.
Adams left with a severance package exceeding what most people could hope to earn in a year. He also departed with an encyclopedic knowledge of VCs he could call, when—not if—he had the next “great idea.” And, he did. In the first round of funding he managed to secure slightly more than $2M to develop the software, systems, and marketing plans for VeriWard. Early funding VCs also provided legal representation to protect their investment, financial management since VeriWard was burning through their $2M, and coaching for Adams who no longer could rely on the vast resources of an Apple, Google, or Yahoo.
Early VCs face the greatest set of risks. The emerging products and services they fund are largely unproven, and most fail. By surrounding the entrepreneur with lawyers, accountants, and office space, early funders mitigate some of the risk. So the energies of the entrepreneur can focus, like a laser, on product development. Early VCs engage this risk for a substantial share of the new company and its product. Even a moderate success can throw off enough cash to pay for a small army of failures. A success like VeriWard can produce stunning returns.
Nothing breeds success like success. The first VCs to surround an entrepreneur have no difficulty in attracting even more VCs to add funding once success is less of a risk. The big money funders take their share of the new company in return for the momentum their money provides. Unfortunately, the high-tech world is littered with once promising products that failed to leverage VC funding to grow and expand. The latest VCs to join in wanted to be certain that Todd Adams wasn’t an explosive device awaiting detonation.
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Overland Park, Kansas
James McRory’s morning communication feed from Elsemere tasked him with an assessment of Todd Adams. In the early stages of an assessment, McRory mined the public sources of information to assemble a basic story line for Adams. Anyone in their late 20s or early 30s had a footprint in the Internet. Working with popular search engines, McRory was able to reverse engineer Adams’ life. A person working in a high-tech field, especially an up-and-comer like Adams, left footprints in the press coverage of people and stories in the IT industry, particularly if their career started in Silicon Valley. And, Adams was no exception. Early on-line press clippings mentioned Adams as a peripheral part of the story. The launch of a new Apple product cited Adams as a product engineer explaining the features of a new product. Later clippings contained photos of an Adams’ sales pitch at Apple and Google events. As his career played out the press coverage increased and Adams’ role and importance became evident. His early professional life a part of the permanent record now accessible via the Internet.
If Adams’ professional life was an open book, his personal life and time at Stanford were not. McRory knew that life did not begin at Apple no matter what anyone thought. Something about Adams motivated Apple to offer Adams his first real job. What was it?