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Speaking up for startups
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December 27, 1998: 11:34 p.m. ET
Mitch Kapor, former head of Lotus, finds new role as angel for emerging firms
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SAN FRANCISCO (The Red Herring) - Mitch Kapor is best known as the founder of Lotus Development, but he has gradually traded in his position as an entrepreneur searching for the next big technology idea for the long-term advisory role of angel investor.
As an angel, he tells the companies in which he invests to concentrate on longevity instead of the short-term return of an instant, but fleeting, home run.
"I learned my lesson on several 'swing for the fences' deals," Kapor says. "I'm not afraid to step up to the plate and take a big risk, but I don't want the whole thing to be driven by hype. People who hit a lot of home runs also strike out a lot."
Kapor arrived at this view through stints as both entrepreneur and investor. He says that the tremendous success of Lotus (now a division of IBM (IBM)) and of his investments in UUNet Technologies and RealNetworks (RNWK) were the result of his focus on technology trends that were likely to have lasting impact.
For instance, his decision to invest early in UUNet, the first Internet access provider, was driven by his realization that the Internet would eventually become a critical tool for businesses.
In contrast, he says that the mediocre performance of his second entrepreneurial venture, On Technology, which makes software for workgroup computing, and his backing of now-defunct startups like Go Computing, which developed the first pen-based computer, and the laptop PC maker Dynabook, derived from flashy technological advances with poor prospects for becoming lasting businesses.
He says that the failure of Go was a particularly instructive example. "We funded it based on the concept, even though it had no business plan," he acknowledges.
But Kapor was not always an authority on business and technology. After graduating from Yale in 1971 with an interdisciplinary degree in cybernetics, Kapor worked as a disc jockey, a teacher of transcendental meditation and a mental health counselor. As a side business, he tinkered with the Apple II and developed a statistics program called Tiny Troll.
The 1978 release of VisiCalc, an electronic spreadsheet and the first personal productivity application, changed software development from a hobbyist's pursuit to a burgeoning industry. Personal Software, the publisher of VisiCalc, bought Tiny Troll from Kapor as a companion product to VisiCalc and hired him to be a product manager in Silicon Valley. Wanting more autonomy, he left Personal after only six months to found his own company.
Although users loved the concept of the VisiCalc spreadsheet, they were bumping their heads against its limitations. Realizing this, Kapor cofounded Lotus Development in 1982 with Jonathan Sachs, a programmer from Data General, and came up with Lotus 1-2-3, a second-generation spreadsheet that better addressed the needs of business users.
To get the new company off the ground, Mr. Kapor convinced the former Morgan Stanley analyst and then-novice venture capitalist Ben Rosen (who had cofounded Sevin Rosen Funds the previous year) to put $1 million into the startup.
Kapor admits that he in fact knew very little then about running a business; nevertheless, as an executive at Lotus until 1987, he developed what are now considered standard business practices for software companies.
Lotus executed the first big advertising campaign for 1-2-3 in the business press and was the first to train computer dealers on a large scale. In 1983, the year it was released, 1-2-3 generated staggering revenues of $53 million and propelled Lotus through its initial public offering. In 1984 the company tripled its revenues, to $156 million.
But when Lotus became a big business, Kapor jumped ship. "Because of Lotus's hypergrowth, the company was soon dominated by the details of day-to-day management," he says. "But I wanted to think long term and bring big ideas to market."
After Lotus, Kapor rediscovered his interest in the future of technology. He became enamored of the precommercial Internet and the social possibilities of virtual communities. But he was equally horrified by some of the government's early attempts to sanitize Internet content.
In 1990, to protect the organic and unregulated potential of the Net, Kapor and the social activist John Perry Barlow cofounded the Electronic Frontier Foundation, the first grassroots coalition to call attention to both the social and political dimensions of networked communications.
In 1994, once the EFF was going strong, Kapor decided to turn his full attention to financing and advising technology startups. Although as an entrepreneur he had been suspicious of venture capitalists, he became a limited partner in VC funds and also made direct investments in startups, working closely with Kleiner Perkins Caufield & Byers and Accel Partners.
Kapor believes he is finally using his strengths -- identifying ideas with staying power and getting them off the ground -- and not getting bogged down in the politics of large organizations. He currently sits on the boards of RealNetworks, which develops real-time streaming audio and video software; Allaire, which makes Web application development software; and several younger startups he declines to name.
Looking back at his 20-year involvement in the technology industry, Kapor says that "the days of the Apple II and Tiny Troll feel like Jurassic Park, especially if you count in Internet years." Speaking like a former teacher of meditation, he adds, "I try to send the message that business does not have to be ruthless and self-interested -- that even in the frenzied pace of the technology market, a fundamentally long-term approach still matters."
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