📸

Silicon Valley investors lived in a clubby world, where personal relationships were paramount. Many VC firms wouldn’t even look at a business plan unless the author had been vouched for by someone the firm knew, like Conway. What Conway did best was institutionalize the relationship process. He looked for who else was going in on a deal, then followed suit, sometimes with only a two- or three-sentence description of the product. The important thing was the pedigree of the managers and the other investors. If they were good enough, they should be able to get a later VC round. And if they got that, the odds were they could go public. The actual product or service was irrelevant. And the more start-ups Conway backed, the more people came into his orbit that he could pump for information. He became “the human router,” in the words of Netscape founder Marc Andreessen, who took Conway’s money for his infrastructure start-up Loudcloud Inc.

Conway mixed extra allure into his operation by making Hollywood connections, then bringing them to his Atherton house for charity events. That was easy enough: the entertainment industry’s stars and producers were tired of getting upstaged by this newer, richer, and sometimes flashier elite to the north, and many of them wanted a piece. Red Herring publisher Tony Perkins introduced Conway to top agent Jeff Berg of International Creative Management. Before long, Hollywood stars Matt Damon and Ben Affleck, who were funding an Internet start-up of their own, auctioned off an evening with themselves at a Conway bash.

Most investors didn’t put money in Conway’s funds because of the star power. They put money into the funds, if they could get in, because it was the easiest way imaginable to make a killing. Steve Bennet, a software-industry consultant who taught a class on getting financing at the University of California, Berkeley, invested after Angel Investors’ Bozeman spoke to his students. In retrospect, he said the problem with Conway’s scattershot model was that “it only works as long as things are going up.” With hundreds of firms getting Conway’s money and only three other general partners running the fund, the whole thing would collapse if the mania stopped and the firms couldn’t go public. “There’s no way they can manage that many companies,” Bennet said. Of course, that’s exactly what happened. By the fall of 2001, the $150 million fund

📸