Evan Beard, a 23-year-old fresh out of Duke University, and his college classmate had created what they just knew was a great product – a cool new way for people to manage their mountains of email.
But they needed an angel, someone willing to gamble on a two-man venture with no balance sheet, no revenue and no profit.
They were praying that angel would be Ron Conway, a grandfather with a thick head of silver hair who, though barely known outside the tech world, is the most influential and best-connected angel investor in Silicon Valley.
When Conway said yes to the company, Etacts, a few days ago, three other investors quickly fell in line.
“Once Ron is in, everybody wants in. It’s like a snowball effect,” said Beard. “For us, it’s game-changing.”
In the Silicon Valley ecosystem, the most vital organism is the Internet start-up. Hundreds are born each year. Most die in infancy.
Since 1995, Conway has invested in 500 start-ups, including Google, PayPal and Twitter. He puts his money down before the large venture capital firms show serious interest, and his stake is relatively small, about $200,000 or less. But his investment gives a company instant credibility and an unrivaled network of contacts.
“He is phenomenal – by far the most helpful individual investor I’ve ever had,” said Marc Andreessen, co-founder of Netscape and a board member of Facebook and EBay. “He’s like a human network router. He just connects people all day long.”
A few years ago, a Web-based voice technology start-up called Tellme Networks was burning through cash and about to lose a major potential customer, Verizon. The company wanted to appeal directly to Verizon’s president, but no one knew him well enough to get a meeting.
“We were at wit’s end, trying to figure out how to turn this dire situation around,” recalled David Weiden, then Tellme’s vice president of marketing.
Conway was one of Tellme’s smallest investors, and Weiden had never met him. But Weiden sent an e-mail after 11 one night begging for help.
Conway replied within minutes: “AM ON IT.”
“When I got up the next morning, he had delivered,” Weiden said. Tellme got the meeting and made the deal, which eventually was worth more than $100 million. A few years later, Microsoft bought Tellme for $800 million.
As America pulls out of recession and Silicon Valley’s innovation engines stir back to life, Conway’s investment firm, SV Angel, has $10 million invested in 50 budding enterprises. He’s adding investments at the rate of two or three a month, in companies with names like Scoopler, Topsy, Blippy and Hot Potato.
His current focus is “real-time data” companies that help people share what they’re doing instantly – using text, photos and video. “This sector is going to be huge,” he said.
Among companies Conway is betting on is Bump, which allows people to exchange information by touching their cellphones, and Daily Booth, a website where users document their lives in photo self-portraits that they share with friends.
“Angel investors make really scary, early-stage investments in companies that are in a Darwinian fight for existence,” said Paul Saffo, a technology forecaster and professor in Stanford’s engineering school. “They need nerves of steel.”
In that world, Saffo said, Conway is in a class by himself. “If Ron Conway didn’t exist, we’d have to invent him.”
Conway steered his black Mercedes down the 101 Freeway recently from his home in San Francisco to the quiet suburb of Mountain View, where the founders of two dozen Internet start-ups had gathered to hear him speak.
The venue was Y Combinators, a kind of “American Idol” for geeks that helps entrepreneurs turn promising ideas into businesses that will attract investors.
Paul Graham, one of the founders of Y Combinators, introduced Conway as “the top angel investor in the Valley. No one debates it. But he’s very hard to convince, so if he does offer you money, I suggest you take it.”
“Please!” Conway interjected, touching off laughter in the room.
Conway, 59 and stocky, wore his customary uniform: an open-collar dress shirt, rumpled khakis and black loafers. No one in his audience of entrepreneurs in frayed T-shirts and shaggy manes appeared to be over 30, and they hung on his every word.
“The first time I sat down for coffee with Mark Zuckerberg,” Conway told the group, referring to the co-founder of Facebook, “he was in shorts and flip-flops. And I remember he said, ‘I’m going to have 300 million users.’
“We’re looking for the next Google and the next Facebook, and believe me, I’m sure it’s in this room,” he said.
Conway doesn’t use and rarely even tries the cutting-edge products he invests in. He scribbles appointments in a dime-store spiral notebook, and his Facebook and Twitter accounts lie dormant. He enjoys reading newspapers.
He relies on his four young partners at SV Angel, experts in social media who include his 24-year-old son Topher, to evaluate products.
One part of the recipe for successful angel investing is seeing lots of start-ups – “You need good deal flow,” Conway said. If a product excites his team, he gazes down the road. “If I can’t think of five companies that will buy this company one day, then we’re probably not investing,” he said.
Conway cares less about the specific ideas than the people who come up with them, and he looks carefully at the chemistry of a company’s founders. “We invest in people. We don’t invest in ideas,” he said. “Ideas can morph. But great people end up building great companies.”
A few weeks after his appearance at Y Combinators, Conway returned for Demo Day, when each of the 27 companies made three-minute pitches to potential investors.
During a break, Conway buttonholed two former Apple engineers who had created Nowmov,
which identifies the most popular Web videos of the moment and allows users to channel-surf them. Conway and his staff had been meeting with the pair and it was time to pull the trigger.
“Are we all put together now?” Conway asked James Black, one of the founders. “It’s me and Ashton [Kutcher]. We’re in for 200 [$200,000] and he’s in for 200, too.”
“We’re not sure about Ashton,” Black replied. Conway guided him across the room to meet the actor, who was handing out cards saying “This certifies that I had a personal encounter with Ashton Kutcher.”
The deal was quickly done. “We’re all set,” Conway said. “Beautiful.”
Conway grew up in the Bay Area, the son of a shipping company executive, and studied political science at San Jose State. After graduating, he went to work in marketing for National Semiconductor.
He co-founded and ran a computer manufacturing firm, and later became CEO of a company that produced tutorials for software programs. By the time those two firms were sold, making him a multimillionaire, he was tired of running businesses. So, in 1995, he began putting money into Internet start-ups.
In 1998, Conway raised $30 million to start his first Angel Investors fund. A year later, he started a second fund with $150 million from a stable of investors that included Arnold Schwarzenegger, Henry Kissinger, Tiger Woods and Shaquille O’Neal.
Giant swaths of those portfolios disappeared when the dot-com bubble burst in 2000. Conway and his investors were eventually rescued by the gems, including Google, which went public in 2004.
Investors in the first fund tripled their money; the venture funds sector as a whole returned just 12% over the same period. Investors in the second fund broke even, while the sector posted a 10% loss. (Those who held onto their Google stock did significantly better.)
“This is a hits business, like the movie business,” Conway said. “In each cycle, I’ve been fortunate to have one winner that paid for all the other investments and delivered a profit.”
After closing the two funds, Conway began investing again on his own. Last year, two companies in his portfolio – Zappos and Mint.com – sold for a total of nearly $1 billion. Google announced a deal to acquire a third, AdMob, for $750 million.
In March, excited by the prospect of rapid growth in real-time data companies, Conway invited several dozen friends to join a new fund. Within a few days, he had commitments of $20 million.
“Whenever he says he’s investing in something, it makes it real easy,” said Steve Chen, who became an angel investor after YouTube, which he co-founded, was sold to Google for $1.65 billion. “If Ron’s investing, I’m always in.”
Conway’s batting average hasn’t varied much over the years. About a third of his investments fail, another third break even, a few make money and a precious few are big winners.
“I’ve tried to figure out why we can’t reduce that failure rate,” he said. “But there’s really no way to do it. It’s the law of averages.”
Conway is cagey about his net worth; it’s certainly in the tens of millions of dollars, if not more. But he and his wife, Gayle, who live in a San Francisco co-op with sweeping bay views, have no second home or expensive toys, and he has no hobbies; he doesn’t read books or play golf.
Instead, he puts in 16-hour days in pursuit of his three main passions: investing in start-ups, philanthropy (he gives several million dollars a year to charities) and tending his social and business network (he has 3,000 names in his address book). Often, those pursuits overlap.
“It’s hard to tell whether he’s working or just enjoying himself,” said Biz Stone, a co-founder of Twitter, of which Conway was an angel investor. “Helping is just part of his DNA.”
An important part of what he does is make introductions. He hosts a spectacular annual holiday party and regular outings in luxury boxes at sporting events to bring together start-up founders and Silicon Valley luminaries. He serves on the boards of several charities and often leans on wealthy friends for contributions.
Shawn Fanning, founder of the audio file-sharing firm Napster, said Conway “is like family to me. He is such a big part of who I am today, and I know a number of people who feel the same way.”
Napster failed, as did Fanning’s next venture with Conway. Still, “Ron was right there to invest and support my next start-up,” Fanning said. That one, a social gaming firm, was sold last year for $25 million.
Fanning is now on his fourth venture, and Conway is again backing him. “Shawn and I have been to hell and back together,” Conway said.
“I do this because it’s in-ter-esting,” he said, drawing the word out. “It’s time-consuming, it’s demanding, yada, yada. But it’s hugely satisfying to listen to an entrepreneur tell you how his idea is going to change things – and then seeing it happen.”
One of Conway’s axioms is that the best new ideas arise from the personal frustration of an entrepreneur.
For Evan Beard and Howie Liu, the source of frustration was managing their on-line conversations with friends and family. Their answer, Etacts, tracks on-line and phone relationships, automatically reminds people when they’ve fallen out of touch and provides easy access to past messages.
At first, Conway’s team decided not to invest. One reason was that when one of them installed the program, he stopped receiving messages from a pretty important person – Conway.
That turned out to be a problem with a spam filter, though; and two weeks ago, David Lee, Conway’s associate, e-mailed the duo to say he was enjoying the product and “we’re at the opposite end of ‘buyer’s remorse.’ You free for a call?”
That afternoon, SV Angel invested $100,000. Within a few hours, other wavering angels followed.
“We’re so excited,” Beard said in an e-mail that day. “And Ashton’s in, too!”