Watching an entrepreneur flame out while pitching his business to Dan Nova is not a dramatic event. There's no shouting or table-pounding. No oaths are uttered. Instead, it's like watching a doctoral student present a draft of his thesis to his adviser. The student valiantly makes his case. There is a pause, and then the control shifts to the adviser who patiently, supportively explains what is still wrong. The student leaves with a faint sheen of sweat on his forehead, dread rising inside about all the work left to do.
Variations on this scenario play out about 10 times a week in the 22nd floor conference room of Dan Nova's venture capital firm, Highland Capital Partners, in downtown Boston. Nova, at age 38, has one of the best hit rates of any Net-focused venture capitalist in Boston, and in the three years since he left David Wetherell's CMGI to join Highland, he has helped transform it into one of the city's most formidable firms. One wall of the conference room is filled with tombstonesÂ—black-framed pieces of paper announcing Highland's dealsÂ—marking investments in rocket-fueled Internet companies like eToys, Lycos, Ask Jeeves, MapQuest, Staples.com, Medscape, Be Free, Send.com, Mercata, and Gamesville.
In January, Highland announced that it had raised a new $500 million fund from its investorsÂ—mostly large institutions like MIT, Harvard, the Hewlett-Packard employee pension fund, and the Ford Foundation. It's not difficult to raise such a sum of money in today's revved-up investment community; Nova says Highland could easily have created a $1 billion fund. “But that would be too much pressure,” he says. “I don't like to do deals because of pressure.”
The pressure stems from trying to invest the money in the right companies. Most of the start-ups Nova evaluates have very limited operating histories. Some don't even have products yet. A few of the CEOs appear to be several years away from buying their first razor. And yet Highland, as a result of the stock market's hunger for fresh Internet plays, finds itself vying with other venture capital firms to fork over money to these companies that are little more than three founders and a PowerPoint presentation.
Nova is astonishingly good at separating the superstars from the impostors. (Though it must be said that in the dot-com world even the impostors often produce decent returns too.) “As he's gotten more successful, he's trusted his instincts more and more,” says Jerry Colonna, a venture capitalist at Flatiron Partners in New York who worked with Nova in the nineties at CMGI, David Wetherell's Internet behemoth where Nova got his start. “In this sector, in these times, trusting your instincts has been a good rule.”
If, that is, your instincts are as astute as Nova's. While working with Wetherell to start CMGI's investing division, for example, Nova found an obscure search technology at Carnegie-Mellon University, licensed it from its creator, hired a chief executive to start building a company around it, and ponied up $2 million in capital. Ten months from its incorporation, that company, Lycos, went public in what was, at the time, the fastest Nasdaq IPO ever. Today, Lycos is worth $8 billion and is the second most-used search site, after Yahoo!.
On a January afternoon, Nova joins a group of entrepreneurs who have already assembled around a long mahogany table in Highland's main conference room. It's time for the two-hour litmus test: Is this nascent company worth a few of Highland's millions?
It's the second pitch Nova has taken today. After some sports banter, Nova offers the condensed version of his résumé, including his numerous board memberships, and a capsule version of his investing philosophy. “We like companies in big markets,” he says. “Companies that have an early-mover advantage and a great management team. And that's why we're [meeting with you] today.” Nova is wearing slate-gray pants, a light-blue dress shirt that accents his blue eyes, a navy-blue v-neck sweater, and black-tasseled loafers. He has slightly pale, chestnut-colored hair and the straightforward, all-American good looks of a menswear model in a JC Penney catalog.
The entrepreneurs present their credentials, and then they begin to narrate a PowerPoint presentation of their business plan, which involves creating an online business-to-business marketplace that will sell used computer equipment. (Some of the details of this meeting have been changed.) After talking about the market's size and its rate of growth, the CEO announces, “We want to package this company for Wall Street. We want a powerful board, so we can go IPO.” The company's final slide reads, “Game Plan: IPO in 12-24 mos.” Such an audacious goal would've been laughed out of a venture capitalist's office 10 years ago, but today it's so commonplace that the open, nonjudgmental expression on Nova's face doesn't register the slightest change.
However, he does have a series of questions for the entrepreneurs, and he asks them persistently, probing for weaknesses in the plan or the management team itself. “How do you make sure you get your money for connecting the buyers [of the equipment] with the sellers? Why wouldn't [one of the major real-world sellers of used computer gear] enter this business? How are you going to get listings of the equipment?” The entrepreneurs respond with answers that sound a bit pat and self-satisfied.
Then Nova raises his major concern: that the business is merely a digitized version of the classifiedsÂ—a listing service. Being just a listing service is a serious problem, in Nova's estimation. It doesn't take advantage of the Internet's power to supersede the traditional ways of doing business.
“If I fast-forward to the road show”Â—the series of presentations to big institutional investors just before a company goes publicÂ— “there'd be marginal interest,” Nova says, before offering a litany of suggestions that would make the site more than just a listing service. What about providing information on the most recent price paid for a particular system or assembling groups of buyers to get a lower price or verifying the quality of a used computer for the buyer? There's nothing about Nova's tone or demeanor that is negative, but he is highlighting a major weakness in the plan. It's like a professor pointing out, in as nice a way as possible, that the doctoral student has neglected to read a couple dozen of the seminal books on his thesis topic.
In a postmortem in his office later in the afternoon, Nova shares his thoughts on the company with Sean Dalton, one of Highland's younger partners. They both admit to having been unimpressed by the CEO and the business plan, and Nova again reiterates his main issue: “It seems like just a listing service.”
Highland's seven partners turn down a majority of the investment opportunities they're offered. Of the hundred business plans the partners review over the course of a week, only 10 groups of entrepreneurs are invited to make a presentation, and Highland makes an average of just two investments a month. Highland decides to pass on this particular opportunity.
“Maybe we'll be proven wrong. We usually are,” Nova says to me, with the assuredness of someone who is, often enough, right.
Nova grew up in a two-family house in East Cambridge, along with five other siblings. His father was a Raytheon engineer who worked on the Sparrow, Hawk, and Sidewinder missiles. The family, of Polish descent, shortened its surname for simplicity's sake, from Nowiszewski to Nova.
Nova describes his daily routine from childhood as “Marine-like”: Up at 5 a.m., he'd proceed to deliver 100 copies of the Globe and the Herald to his neighbors, assist with Mass at the neighborhood's Polish-Catholic church, go to school, play soccer or football, come home for dinner at six, and study until nine. “There was not a lot of free time to hang out,” he says. “My parents designed it that way, so I wouldn't get into trouble.”
Nova discovered a natural affinity for sales early on, with a job in the garden department of Lechmere. “It was kind of comical,” he recalls. “We had no lawn at our house. I'd never planted a blade of grass in my life, and here I am pushing seeds and fertilizer.”
After graduating from Boston College High School, Nova went to BC to major in computer science and marketing. “I wanted to make money. It was that simple,” he says. “DEC and IBM and Apollo and Prime were grabbing all the big headlines, and they were hiring like crazy. Route 128 was America's technology highway. As much as I enjoyed the challenge of programming”Â—Nova, who graduated with honors, learned how to write Cobol, Basic, Pascal, and AssemblerÂ—”I knew that I could make more money selling computers.” At the time, Wang Laboratories was one of the state's hottest minicomputer firms, and, upon graduation, Nova repeatedly cold-called a vice president of sales at Wang until he was granted admission into the firm's sales training program.
Almost as soon as he began working his new territory in Stamford, Connecticut, Nova started building a reputation as one of Wang's hardest-driving salesmen. He bought a house in Newport, where he spent weekends sailing and windsurfing. His first trip out of the country was on a Wang “achiever trip” to Italy. He wasn't dating anyone at the time, so he brought his mother. “She'd always wanted to go to Rome,” Nova explains.
It was while working at Wang that Nova met Bob Davis, who for a time ran the company's Burlington sales office and managed Nova. (In 1996, Nova would hire his former boss to be Lycos' first CEO.) By the time he was 26, Nova got promoted to a Wang branch handling government, medical, and education accounts in Boston. When Nova arrived, the branch was performing at 60 percent of its sales goal; when he left, it was performing at 150 percent of its sales goal.
“I love selling. That's what I do now. I sell money. I sell our value-add,” Nova says, leaning back in his desk chair. The focal point of the office is a giant framed satellite photograph of eastern Massachusetts. Nova's bookshelf is full of tchotchkes; like baseball caps from Wit Capital, Lycos, and Nova University in Florida; and lucite plaques commemorating the IPOs of several of the companies he has helped finance. “What I love about selling is that it's competitive in most situations. And it's really nothing more than listening.”
During a meeting, Nova manages to be quiet without being imperious or withdrawn. Talking just to hear himself talk or to demonstrate control of a meeting is inconceivable to Nova. “He is very thoughtful and contemplative,” says Dalton. “He tends to sit back and take it all in. When he finally has it figured out in his head, he has an uncanny ability to be right. You just have to say, 'Of course!'”
“He's a calm man in a not very calm time,” says Steve Kane, the founder and chief executive of Gamesville, a company that Highland funded in 1999, just before it was sold to Lycos. (Gamesville awards users prizes for playing online games like bingoÂ—and for providing the company with detailed demographic information that enables advertisers to target them.) “Nova is almost unflappable,” says Kane. “That's a quality I admire and try to strive for.” As Nova sees it, the fact that both his older brother and his father died of cancer shaped his perspective while he was still young. “I was 10 when my brother died,” Nova says. “Death at 10 is a foreign concept. The lesson there was to seize the day, to make the most of life as early as possible. And my dad . . . my dad had six kids. He started school at 26 on the GI bill. He couldn't take any risks. As much as I strive to emulate my father, one thing I refuse to do is get frustrated in life because I didn't take enough risks.”
Though Nova was making $200,000 a year at Wang, he opted to quit and attend Harvard Business School. “Dan's a very ambitious guy,” says Edward Philip, one of Nova's section-mates at Harvard and now the chief financial officer at Lycos. “He wasn't sure what he wanted to do next, but he knew he wanted it to be bigger than selling computers.”
Business school “was academic Disneyland for me,” Nova says. “It was completely refreshing, eye-opening, intoxicating.” The timing was perfect. It was 1989, and the 1980s minicomputer revolution that Wang had helped lead was in the process of imploding, but the Internet revolution was still years off. In the summer between his first and second years of B-School, Nova took a job with Salomon Brothers in Manhattan. “It was a horrible experience,” he says in retrospect. Horrible, though, in the same way that running 10 miles a day is horrible. Nova was determined to improve his quantitative skills, and three months spent working with spreadsheets did the trick.
As graduation approached, Nova started writing and calling dozens of venture capital firms all over the country. He landed a job in Boston as a senior associate at Summit Partners. His first task: to serve on the board of a company called Organic Waste Technologies, which had figured out a way to convert methane gas from decomposing trash into energy. It was a classic new-kid-on-the-block assignment. The company was in Cleveland. Board meetings were held on Saturday.
Keeping pace with Nova over the course of a typical day at Highland requires extraordinary energy. His day starts at about 5:30 a.m., when he wakes up at his home in Andover. He drives his Volvo into Boston, arrives at the gym at One International Place by 7 a.m., and works out for about an hour.
On the Stairmaster, clad in a faded navy T-shirt and gray shorts, Nova gives me the half-hour huff-and-puff course in venture capital. The field has its roots in Boston, with a firm called American Research and Development (ARD). ARD was started in 1946 by Ralph Flanders, president of Boston's Federal Reserve Bank, and General George Doriot, a native of France who taught at Harvard Business School and had served in the American Army in World War II. Doriot is rightly regarded as the father of venture capital. At ARD, he backed a young MIT engineer named Ken Olsen and his unknown start-up, Digital Equipment Corporation. At Harvard, he taught an entire generation of venture capitalists, including Arthur Rock, the legendary West Coast venture capitalist (VC) who later helped finance Intel Corporation and Apple Computer.
Venture investing started smallÂ— ARD's original investment in Digital Equipment was $70,000 for 77 percent of the companyÂ—but the industry grew swiftly. And the Internet has quickened the pace even more. Highland alone has just over $1 billion under management, and last year, according to the National Venture Capital Association, venture capitalists invested $48 billion in their portfolio companies, up 150 percent from 1998.
Venture investing works like this: Limited partnersÂ—pension funds, institutions such as art museums and universities, and some wealthy familiesÂ— invest a portion of their holdings in venture capital funds, seeking high returns and, along with it, accepting a fairly high risk. The minimum investment for a limited partner at Highland is $10 million.
Highland is a firm that makes most of its investments in early-stage companiesÂ—those that have not yet gone public. It invests anywhere from $1 million to $40 million in a single company. Once it has made an investment, a Highland partner typically takes a seat on the board of directors of the company, helping to build the management team, shape strategy, and, ideally, guide the company toward a “liquidity event” like a sale or initial public offering.
A 100 or 200 percent return is considered a lackluster performance. Venture capitalists aim for “10X” and “20X” returnsÂ—10 or 20 times the original investment. Nova reckons that with a company like MapQuest, which provides maps and directions on the Web and was acquired by America Online last year for $1.1 billion, he achieved about a 30X return. Ask Jeeves, a search engine that answers questions written in plain English, and Be Free, a Marlborough company that builds affiliate sales networks for Web merchants, were closer to 50X or 60X. Though the venture capital firm draws a 2 to 3 percent annual management fee from its fund to pay expenses, the bulk of its remuneration comes from sharing in the profit.
What makes all that so much fun for Nova is that he is placing bets on entrepreneurs, emerging technologies, changes in consumer behavior, and industry trends that have only just begun to take shape.
“Dan is motivated by taking a theoretical idea or a small company and building it into something very large,” says Edward Philip, Nova's classmate from Harvard Business School. “He has done it with Lycos, GeoCities, eToys, Ask Jeeves, MapQuest, and others. There are very few other people around who can match his track record.”
“He gets tremendous exhilaration from being five steps ahead,” says Joe Nolan, a classmate of Nova's from Boston College. “He likes to be ahead of the curve. He gets a thrill out of being a pioneer. And yet he's basically the same guy I drank Busch beer with at BC. He sees things 10 to 12 months ahead of the rest of the world, but he doesn't mind explaining them to me.”
After his workout, Nova stops in the food court at International Place for a sausage and egg muffin which, along with a cup of tea he makes in Highland's kitchen, constitutes breakfast. His assistant, Elizabeth, hands him a call sheet, listing his unreturned calls from the previous day. Nova gets approximately 100 e-mails and 40 voice-mails a day. Nova leaves a few voice-mail messages, then has a brief chat with Ron Nordin, formerly the chief executive of SQA, a company that Highland backed, and now a partner at Atlas Venture in the Back Bay. Nordin congratulates Nova on Highland's new fund, then pitches him on a company that hopes to streamline the process of buying and selling container space on cargo ships. (Most venture financing deals involve a “syndicate,” or group of firms, so venture capitalists freely discuss their deals with each other.) Nova pitches right back, telling Nordin about an e-commerce site offering hard-to-find European products for Europeans living in the United States.
Although Highland is still far from finalizing a deal to invest in the online arm of a major media company, Nova's next conversation is with its chief executive. Nova is trying to help him line up a few candidates for the subsidiary's chief information officer post. Later, Nova explains that Highland intends to make one of its largest investments ever in the company for two reasons. First, Nova thinks the company's brand will only gain in value on the Internet, thanks to the profusion of unreliable information. Second, he believes that the company will be a valuable distribution partner for many of Highland's other portfolio companies, helping attract users.
Nova says he spends about 35 percent of his time recruiting for both Highland and its portfolio companies, and his 9 a.m. meeting is with a candidate for the position of vice president of marketing at Beliefnet, a site dedicated to religion and spirituality, and founded in Hadley, Massachusetts. Nova spends much of the hourlong conversation in listening mode, though he does offer a strong opinion about how important marketing will be to the young company. “One thing we need to do is plant the flag, be loud, so Benchmark and Kleiner”Â—two West Coast venture capital firmsÂ—”don't say, 'Why didn't we think of that?' and dump $50 million into Faith.com. We want to say, 'We're here. We're the AOL of this space.'”
And since he knows this candidate, who has served in a marketing role at another Highland-funded company, has several other options lined up, Nova closes the meeting by selling the Beliefnet opportunity hard, in his amiable, nonconfrontational way: “You can do well by doing good. There's compensation here that's not measured in the W-2.”
At 10, there is a pitch meeting from a company that runs games and contests online. Nova makes notes on the inside of a manila folder about the other venture capitalists involved in financing the company, the valuation they've assigned to the company's shares, and the way equity has been distributed to earlier investors, employees, and the founders. He's impressed by the boy-wonder CEO, who has already built and sold a Web-site development agency, but surprised that he can't offer better data about who is playing the games. He asks about a strategic partnership that seems to have gone sour and offers to make connections with friends, former Harvard Business School classmates, and portfolio companies that may be able to give the company a boost.
“I like the team,” Nova reflects afterward. “[The CEO] is smart, articulate, and a nice guy, and he's recruited some pretty impressive, young, smart people. They're not yet world-beaters, but they can be.”
But the company's valuation is already a bit high for Nova's liking, and he's worried about the dearth of customer data and that failed partnership. “This is a 'tweener' for me. It's the worst kind of deal,” Nova says. It falls in the gray area between “yes” and “no” and will require a substantial amount of due diligence and consideration.
It's only lunchtime. Nova heads downstairs to grab a sandwich and a bowl of soup from Au Bon Pain. Back at his desk, he returns a few phone calls and reviews some documents related to the next company coming in to pitch him. After the pitch, there's another interview with a job candidate, a meeting with his trust attorney, a phone call with a long-time friend who wants Nova's advice on how to rescue his failing business, and, from 7 p.m. to 8 p.m., a conference call with the mergers and acquisitions committee of Ask Jeeves, which is in the process of acquiring Direct Hit, a Natick-based search engine. Then there is a business dinner with some of the other partners at Highland.
Though Nova's schedule on weekdays can be brutal, most winter and summer weekends are spent with his wife, Annette, and their three daughters at his house on Lake Winnipesaukee in New Hampshire. “It's easy to fall into the rut of working 150 hours a week, but Dan spends a lot of time with his family, and he manages to have a life,” says Steve Kane of Gamesville. “It's inspiring to call him up and hear, 'He's at the lake, and no, he's not answering e-mail.'”
At Summit Partners, Nova's track record was respectable enough in that several of his companies were sold or went public, but he didn't feel he was making a substantial difference. He wanted to find a smaller firm that was investing in earlier-stage companies, rather than the stable, more established companies Sum- mit backed.
Greg Avis, a partner at Summit, introduced Nova to the chief executive of one of Summit's little-known portfolio companies, CMG Information Services. CMG's chief executive, David Wetherell, had just sold a first-generation Web browser to America Online for 710,000 shares of stockÂ—worth about $30 million at the timeÂ—and he wanted to start investing the profits in leading-edge Internet companies.
Nova showed up for his job interview at CMG's old offices in Wilmington at 11:30 a.m., split a bottle of wine with Wetherell over lunch, and listened intently as Wetherell spun out his vision of how the Internet “was going to change the world, just like Gutenberg's printing press. He knew he wouldn't be able to start every valuable company in the [Internet] space, so he wanted to figure out how to invest in a bunch of companies that would make a real difference,” Nova remembers.
He took the job, though his colleagues in the venture community questioned his sanity for deciding to specialize in Internet investing. “There were no public companies in the space yet,” Nova says. “Netscape hadn't gone public. My colleagues thought I was crazy. 'Isn't that kind of narrow?' they asked. I saw what this might become. Now, everyone's an Internet VC. The question is, Are you B-to-B (business-to-business), B-to-C (business-to-consumer), customer service? There are so many subsegments.”
Nova contributed a sense of structure to Wetherell's first foray into Internet venture capital. “He was the one guy in the entire group who brought a sense of discipline to the entire venture process, from what the weekly staff meetings were going to be like to what the term sheet should look like,” says Colonna, who worked closely with Nova at CMG. “Dave [Wetherell] is terrifically smart in a lot of ways, but he had never been a VC before.”
Along with the creation of Lycos, there were investments in pioneering companies like GeoCities, a service that enables users to easily build a Web page for free, and which was eventually acquired by Yahoo!; TeleT Communications, an innovative company that married telephone technology and the Internet to let users do things like send voice messages inexpensively by e-mail; and ThingWorld, a Watertown company that makes multimedia software for the Web. Along the way, Nova and Wetherell became friends; when Wetherell bought 20 acres on Martha's Vineyard for a vacation house, he discussed having Nova purchase part of the land. Work was always first, but Wetherell and Nova spent plenty of time playing pool, listening to music, and socializing together with family.
In the summer of 1996, though, the two men had an argument that ended the friendship. CMG had invested the original money it had received from AOL. Nova wanted to raise another fund promptly, bringing in outside investors, as with a traditional venture fund, and expanding the scope of CMG @ventures. Wetherell was hesitant; he was toying with the idea of making future investments primarily to aid CMG's wholly owned companiesÂ—a typical kind of strategic investing function within a corporation. Nova and Colonna were already worried about the close relationship between @ventures and the rest of CMG, and they felt the only way to avoid conflicts and afford @ventures sufficient autonomy was to bring in outside investors. “There was an inherent tension between what @ventures was trying to do and CMG's overall goals,” Colonna explains. “We had more of a financial interest in @ventures than CMG, but Dave saw it all as one piece.”
Someone who knows Nova well adds, “Dan was not overly confident with some of the decisions being made at CMG. Dave would get so enthralled with a technology, he'd lose sight of the fact that it'd have to be a business someday. They did a few bad deals that they were lucky to get out of.”
In August of 1996, Nova made what he calls the toughest decision of his career so far: He left CMG. “I would've stayed if they'd decided to raise another fund,” he says now. (That's exactly what CMGÂ—now CMGIÂ—did soon after Nova and Colonna left.)
As soon as Nova gave his notice, according to someone who worked with him at the time, “He didn't exist [to Dave]. Dave would just look through him. He was like the walking dead. With Dave, you're either in his life or out of his life.” Even Nova describes their relationship today as “fractured.” (Wetherell declined to be interviewed for this story.)
At Highland, Nova's first move was to buy a block of restricted Lycos shares from a company insider who was looking to sell. He felt that the company, though already publicly traded, was drastically undervalued. It was a smashing success: Nova scooped up nearly 5 percent of the company at $10 a share, and sold in the $30s.
His second investment at Highland, in GeoSystems (later known as MapQuest), almost proved disastrous. The company was a spinoff from printing giant R.R. Donnelly. “Just about everything that can go wrong did,” Nova says. The company, which had a traditional map sales business in addition to its Web site, “completely missed its sales forecasts,” and then a month into Highland's investment the CEO quit for personal reasons. GeoSystems, valued at $30 million when Highland first got involved, had dropped to a $15 million valuation as R.R. Donnelly decided to sell its stake. “We doubled down,” Nova says. “I felt we had hit bottom. There was nothing but upside.”
Nova hired an executive recruiting firm and worked closely with them to find a new CEO, Mike Mulligan, who came from American Express, where he'd been in charge of interactive travel strategy. “Mike refocused the company, changed its name, reduced its emphasis on printed maps, took it public, and sold it to AOL for $1.1 billion last December,” Nova says admiringly. (According to MapQuest's original SEC filing, Highland, which owned about 22 percent of the company, received roughly $200 million in AOL stock when MapQuest was sold.)
“From the first meeting with Dan, you get the sense that he doesn't want to second-guess you,” says Mulligan. “He understands what you're trying to do, and he's there to be a resource or a sounding board. I'm a fairly independent CEO, so Dan and I have clicked very well as a result of that.”
The parade of successful liquidity events since Nova arrived at Highland has been lengthy and loud. Just last year, eight of the firm's portfolio companies went public, and six were sold. Nova is confident that 2000 will surpass that mark. Among last year's high points: NextCard, a Web-based issuer of credit cards, was worth $1.4 billion at the end of its first day of trading; eToys had a market cap of $7.7 billion at its debut; and Ask Jeeves hit $1.5 billion. WebLine Communications, which made customer service software for the Web, was snapped up by Cisco Systems last fall for $325 million, and Boston's Gamesville was sold to Lycos for $207 million in November.
And Highland has a stable full of companies drafting documents for an IPO or currently registered with the Securities and Exchange Commission. The list includes companies like Framingham's Staples.com, the online division of the office products giant; Cambridge's Mainspring Communications, an Internet-oriented market research and forecasting firm; and Mercata, a site that enables groups of buyers to band together for discounts.
Ask Nova whether the market's ardor for Net stocks constitutes a bubble, and his laid-back demeanor disappears. Suddenly, he's emphatic: “There is no bubble. When a bubble breaks, there's nothing there. The Internet is real. It's not going away. E-commerce is not going away. The bubble doesn't exist. There'll be spikes, and there'll be declines, but there's nothing to break.” Even when the stock market sours on new companies, Nova points out, there's a silver lining for venture capitalists: The valuations of the companies they fund drop, meaning that they pay less for every share of a prepublic start-up that they buy. Then, they simply wait for the stock market's appetite for new companies to perk up again.
Of course, there have been some winners that Nova has missed during his tenure at Highland, and a few also-rans. Nova turned down the chance to invest in Silknet, sold to Kana Communications in January for $4.2 billion, and also the opportunity to put some of Highland's money into GeoCities. “He was a chicken,” Colonna says. “We made $400 million in Yahoo! stock [when GeoCities was sold], which has since tripled.” Colonna, one of Nova's closest friends, ends his harangue with a few chicken “boks.”
In the latter category is Quote.com, the financial services site that failed to find a foothold in a sector that included TheStreet.com and CBS MarketWatch, and was eventually sold to Lycos.
Still, Nova is one of the most sought-after investors on either coast. “In Boston and in the country as a whole, Dan is one of the most aggressive Internet investors out there,” says Mike Lannon, founder and CEO of Send.com, the Waltham-based Internet gift site.
“What has contributed to Danny's success is that he's very optimistic,” says Marty Mannion, the Summit partner who hired Nova and has since worked with him on several investments. “He's great at energizing entrepreneurs, getting them to think bigger than they've been thinking. When we started looking at Telcobuy [a business-to-business commerce site for telecommunications products and services] with Danny, his logic was, 'Hey, this could be hugeÂ—a portal for the telecom industry.' He looked at the entrepreneurs and said, 'You have a [several] billion dollar opportunity here. You have the first-mover advantage.' He introduced them to contacts for joint ventures, and they've started interviewing investment bankers” in anticipation of a public offering. “He's gotten them revved up to move a lot quicker than they'd planned on moving.”
Gordon Hoffstein, chief executive of Be Free, the affiliate sales company, ditched another venture capital firm to make room for Highland in the company's second round of financing. “I wanted Dan,” says Hoffstein, who met Nova at a Send.com board meeting. “He listens and then uses his vast storehouse of experience to come up with a solution. I wanted to be part of his orbit.”
On a Monday morning in mid-February, the staff meeting at Highland isn't totally stress free. Participating via speakerphone, Keith Benjamin, the firm's San Francisco-based partner, worries that the CEO of a business- to-business commerce company Highland is thinking about funding “is not the CEO to take this company public.” The chief operating officer of a company already in Highland's portfolio seems to have “blown a gasket,” according to founding partner Paul Maeder, and is on the verge of filing a lawsuit.
But as the partners review the list of companies preparing to go public and the stock prices of those already on the market, the atmosphere in the conference room becomes downright jubilant. “Boy, they're on fire,” one partner says approvingly of Be Free's run-up on the Nasdaq. Maeder shoots back: “Better hope they're still on fire on April 29″Â—the date Highland would be able to legally sell its shares (the date has since been pushed back as a result of an acquisition). The stocks of Lycos, which bought Gamesville and Quote.com, and Cisco, which bought WebLine and Altiga Networks, are also upÂ— more good news for Highland, which will soon be able to liquidate those shares. “Talk about a rising tideÂ—this is like the Bay of FundyÂ—42 feet an hour,” says Wyc Grousbeck, one of Highland's partners. “All the boats are going up.” After a moment, he adds: “Of course, the water level eventually comes down.”
Eventually. But the rising tide of the Internet, which is reaching into every cove and crevice of the business landscape, has already transformed Highland's partners into very wealthy men.
Nova won't talk specifically about his net worth. A Wall Street Journal reporter erroneously tagged it at $2 billion last year, but in truth it's merely in the tens of millions. His only extravagances are the house on Lake Winnipesaukee and a renovated Victorian near Harvard Square that he'll move into in June. It's an entirely different world than the two-family house he grew up in in East Cambridge, and Nova jokes about being on “the right side of the tracks” this time.
To Nova, the money is nice, but it isn't the central attraction of the venture business. He flourishes by being in the middle of the Internet's deal flow, seeing innovative new ideas before anyone else and doling out money to the entrepreneurs who will make them real. “I can't imagine a job that would be better suited to me,” Nova says. “I get to live a balanced lifestyle, have a ton of fun, and hang out with the coolest people in the world. Plus, I learn a huge amount every day.”
Nova has always been a diligent student of sales, of finance, and of the various generations of Internet technology, and his learning is entering a new phase. Over the past few years, Nova has begun exploring charitable giving, with a sizable donation to the Children's Hospital Trust and the endowment of a cancer research chair at Harvard, and this spring, he plans to launch a national philanthropic movement he calls Give Back. Nova intends to return the bulk of his fortune to the community, and he wants to encourage other high-tech millionaires and financiers to consider doing the same.
“At the end of 1999, I sat back and said, 'Geez, what a year for me. And for that guy, and that guy, and that guy.'” Nova points to the tombstones that cover one wall of the conference rooms. “We've worked no harder or smarter than previous generations. It's criminal not to recognize that we've been in the right place at the right time. This is the luckiest generation in the history of capitalism, and there needs to be a way to give back.”
Nova has already begun to enlist his colleagues in the venture community, as well as entrepreneurs he has funded and others in Boston Internet circles. Each participant will pony up at least $1 million and, with other members of a small “pod,” investigate various nonprofits and decide how to give the pool of money away.
Nova hopes that Give Back will have more of an impact on society than any of the start-ups he has helped launch. No one who knows him will be betting against him. “Dan has a relentless desire to succeed,” says Bob Davis, Lycos' CEO. “It shows up in everything he does, and I expect it will show up even more with Give Back.”