Zip2 had earlier asked other venture capitalists if they wanted to invest in the company, but they declined because most of them had never heard of this Internet. “Back in 95, there weren’t many people on the Internet and nobody was making any money at all. Most people thought the Internet was gonna be a fad,” Elon said.27 One venture capitalist threw a phone book at them and asked, “Do you really think Internet will replace this?”320
The reason why everyone now wanted to invest in Internet companies was that Netscape became a public company in 1995. This was, however, not the largest IPO this year. Pixar’s – another technology company famous for movies like Toy Story – was larger. But while Pixar’s stock increased with only 77 percent the first day, Netscape’s stock increased with 107 percent. It was clear that technology, especially Internet, was the hottest investment. “Netscape went public in late 95, and that was the first inkling that – even if nobody was making any revenue on the Internet – at least there was some greater fool who would buy the stock,” Elon said.57
Elon’s first car was a used 1978 BMW 320i with a price tag of $1400. The car was in a miserable shape, but Elon fixed it up himself. He owned it for two years, and once, he loaned it to an intern who worked at Zip2. While the intern drove the car, one of the wheels fell off. The intern called Elon who rushed to the scene. He recalled how he could see the scratches in the road made by the axle where the wheel had been attached.124
When Elon was seventeen years old, someone gave him a book on classic convertibles. The car he liked the best was the Jaguar. He would later buy one for himself, but had to wait until the venture capitalists invested in Zip2. They gave Elon $40 000 as a bonus, and $35 000 immediately went to a 1967 Series 1 E-type Jaguar. While the E-type is considered to have the best car design ever made, it’s also unreliable. Elon recalled that the “Jag” was like a bad girlfriend since it kept breaking down. It even broke down on the way home from the car dealer.124
To get this first investment, Elon agreed to replace himself as CEO of Zip2. Replacing an inexperienced CEO with an experienced one is a common thing to do in new companies as they grow, and Elon assisted in the recruiting process. They decided that Rich Sorkin was best suited to become the new CEO. Sorkin had a degree in economics from the Yale University and an MBA from the Stanford University Graduate School of Business. Before joining Zip2, he worked at companies such as Goldman Sachs and Creative Labs. When he took over the rudder, Elon thought it was a good idea because the value of his shares in Zip2 would increase if they hired a competent CEO. But he would later regret the decision to step down as CEO.71,324
As Elon is a person with strong views, he didn’t always share the new CEO’s vision. Zip2 wasn’t a consumer company with a recognized brand name. The only clue a website was a part of Zip2 was that it included a smaller logo with the text “Powered by Zip2.” Elon wanted more visibility, and visibility to him meant he wanted his picture on the front page of a magazine.263 “I’d like to be on the cover of Rolling Stone, that would be cool,” Elon said.27
Elon lost more and more power. Due to all the new investments, his share of the company decreased. Four out of seven board members consisted of the new investors: Knight Ridder, Hearst, and The New York Times. These board members also represented the clients, so Elon didn’t have much influence regarding the company’s future direction. “What they should have done is put me in charge,” Elon said. “That’s OK, but great things will never happen with VCs [venture capitalists] or professional managers. They have high drive, but they don’t have the creativity or the insight. Some do, but most don’t.”71
In 1998, Zip2 began to discuss with the company Citysearch if they could merge into a larger, more competitive company. Citysearch was involved in the same business area as Zip2. If the companies merged, they thought the larger company could compete with Microsoft’s Sidewalk – another similar service. Zip2’s board approved the merge and published the deal in a press release. But the merge never happened. Elon had talked with Charles Conn, who was the CEO of Citysearch. While the original plan was that Elon remained in the new company, Elon thought Conn would force him to leave the company after the merge. So Elon and his brother decided to say no to the merger of the two companies.263
The failed merger resulted in that Zip2 forced Elon to give up his position as the chairman of the company and Sorkin lost his job as CEO. Derek Proudian, who was the first venture capitalist to invest in Zip2, took over as CEO.71
In April 1999, Compaq bought Zip2 for $307 million in cash. It was the largest sum up to that point ever paid for an Internet company.57 Elon made $22 million since he and Kimbal owned about twelve percent of the company.59 The reason why Compaq bought Zip2 was that they wanted to merge Zip2 with Altavista to compete with Yahoo.319
But Elon was angry at the investors. He thought they sold the company way too early. Zip2 could have been worth ten times the amount they sold the company for. The software Zip2 had was as good as the software the much larger companies Yahoo and Excite had.363 Elon wanted to help build the Internet, but he had just built software for newspapers like The New York Times. And in 2013, the company is almost forgotten. “After Compaq bought my company, it was merged with Altavista and the combined entity was rather poorly managed by execs whose main background was making PCs in Texas,” Elon said.259
After just a few years in the Internet industry, Elon had the option to retire. “I guess it’d be really easy for me to spend the next 40 years doing absolutely nothing, hanging out, buying an island,” he said. “The idea of lying on a beach as my main thing sound horrible to me. I would go bonkers. But I like to go to the beach for a short period of time, but not much longer than a few days.”265,363 Elon didn’t buy an island, but he bought a large house and a McLaren F1.
Joining the Mafia
Elon was bored. But as we’ve seen before, boredom can lead to great things. “It’s not that I’m a workaholic, I don’t think,” Elon said. “Actually, I just can’t resist seeing and being a part of what’s going to unfold with the web over the next decade or so. I’m still endlessly curious about how it will evolve. I know it’s nowhere near fulfilling its potential. I’m much more interested in trying to create a new company. It’s sort of like a series of poker games.”265,266
Elon asked himself what opportunities remained within the Internet area. He realized that not much innovation had happened within the financial services sector. “The banks are terrible at innovation, and financial services is a huge sector, so I thought, there should be something here,” Elon said.71 This was the poker hand he wanted to play. “I’ve gone on to a more high-stakes poker game and taken my chips with me,” he said. “And I haven’t gone and taken my winnings and spent a big chunk, but I’ve just really put almost all of it back into the new game.”266
He had earlier shunned the idea to work as an employee in the finance industry. “I wanted to have a sense I was working on something having a fundamental impact on people’s lives, and going to Wall Street or into a large corporation, I became sure, was not going to be a way of doing that,” he said.265