Delivering Happiness

Incubator

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Her words stuck with me: “Envision, create, and believe in your own
universe.”
Although connecting with my new tribe of friends played a big role in
increasing my level of happiness, I missed not actually being part of
creating something. Just sitting on the sidelines and investing was boring. I
wanted to be part of building something, and creating the Venture Frogs
Incubator was an important piece to building my own universe.
In addition to signing the lease for the office space of our future
incubator, Alfred and I also signed a lease for a restaurant in the same
building, which we would call Venture Frogs Restaurant.
My parents had moved back from overseas and volunteered to run the
Venture Frogs Restaurant over the next several years. The dishes in the
restaurant were named after various dot-com companies. One of the crowd
favorites ended up being the Akamai Fried Rice.
We had a restaurant, a gym, movie theaters, incubator office space, and
lofts all under one roof. We hired a handful of employees to keep the
incubator offices up and running.
We were creating our own universe.
With the Zappos crew moving into our building (initially into the
converted party loft, and then eventually into the incubator office space), I
started spending more and more time with the company.
The raves I went to slowly became more and more commercialized, and
the events started feeling like they were more about making money than
they were about spreading the PLUR culture. They started to attract a
different type of crowd, and people’s attitudes at the events started to shift. I
realized that I had discovered raves at the tail end of the movement.
Without Club BIO as the party loft to serve as a central meet-up
location, the tribe that we had built slowly started drifting apart. We had
been bound by a common purpose in the beginning: to form a community.
It was exciting in the early days, because every day we saw our tribe grow
and strengthen.
But we lacked a shared purpose beyond just hanging out and partying.
We still continued to keep in touch, but without something for us to make
progress toward, and without a default meeting place that was the
equivalent of Central Perk, different members of our tribe started focusing
on other things that were going on in their lives. Some of us tried to figure

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out what our true passions were so that we would have something better
than partying to focus on.
I was one of those people.
I
had always been passionate about planning and throwing parties because I
really enjoyed the idea of architecting and creating experiences and
memories. I enjoyed watching people’s reactions and hearing them say
“WOW” when they walked into a party that was unlike any that they had
ever been to. It was gratifying for people to come up to me at the end of the
night or the next day and tell me what an incredible time they had.
But as passionate as I was about all of that, I didn’t see party planning as
a full-time occupation for me. I thought of it more as a hobby that I was
passionate about, and I needed to find something more meaningful that I
could dedicate myself to full-time.
They say that novelty is the biggest aphrodisiac. Making the initial
investment to fund new ideas and companies was exciting, but in a
relatively short period of time, Alfred and I had made twenty-seven
investments and there was no more money left in the fund. Without more
investment capital, we couldn’t get involved with any new companies, and
the excitement of being an investor wore off quickly.
At the time, almost every idea we heard seemed like a great idea, so the
money went quickly. (We would find out ten years later that, on average, we
had made a slight profit on most of the companies that we invested in, but
the vast majority of the profits from the fund would come from Zappos. It
turns out venture investing is a lot like poker. The one who makes the most
money isn’t the one who tries to play and win as many hands as possible. At
the end of 2009, we had distributed over 5.8 times the initial fund amount to
our investors, making Venture Frogs one of the top-performing funds from
1999.)
In April 2000, the high-flying dot-com stocks started to crash in the
stock market, causing widespread panic throughout Silicon Valley. Many
companies went out of business, and the venture-capital firms that we were
counting on to take our portfolio companies to the next level scaled back
and refused to provide additional funding for almost all of our investments.

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A couple of companies moved into our new incubator office space, but
without additional funding, they stopped paying their bills and went out of
business a few months after that.
Eventually, Zappos was the only company left in the incubator, and we
weren’t optimistic about the prospects of any other companies moving in
anytime soon. It was a bad situation for our fund, for the incubator, and for
Zappos.
Alfred and I originally had the ambitious goal of raising a second fund
of $100 million. We had done all the paperwork, and asked investors who
had participated in our original fund if they wanted to put money into our
second fund.
Our first fund had been a great vehicle for meeting a lot of interesting
companies and people in a relatively short amount of time. As general
managers of the fund, we had taken the idea of having the universe come to
us and made it happen. We enjoyed learning about new companies, meeting
new people, entertaining new ideas, and making new investments.
The problem was that once the investments had all been made, most of
our time was spent dealing with companies that were not doing well and
were unable to raise additional venture-capital money to keep them going.
We thought our best bet was to raise a second fund. If we could raise
$100 million, then we could provide the next round of funding for the
portfolio companies from our first fund to get them to the next level.
We sent out an e-mail to our previous investors to get an idea of how
many would be interested in participating, and then waited anxiously for
their response.
As it turned out, not a single person was interested. We ended up raising
exactly $0.
U
p until this point, I hadn’t been too worried about the dot-com crash.
Even though LinkExchange had been a bad experience from a culture
perspective, financially it was a success story. Alfred and I had used our
credibility from the LinkExchange sale to raise the $27 million for our first
fund, so we naturally assumed that it wouldn’t be that hard to raise money
for our second fund.
We were wrong.

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I started to have feelings of self-doubt. I wondered whether I had just
gotten lucky with LinkExchange. Was I just a dot-com lottery winner who
happened to be at the right place at the right time?
Alfred and I had continued to keep in touch with Michael Moritz at
Sequoia about Zappos, and despite the progress that Zappos was making,
Sequoia was still not interested in investing.
I believed with all my heart that Zappos had a great shot at succeeding. I
felt that I needed to prove to myself and to Sequoia that the financial
success of LinkExchange was not a fluke, that it wasn’t just dumb luck. I
wanted to prove to the world that I could do it again.
So I decided to take off my investor and adviser hat and put on my
entrepreneur hat again. I joined Zappos full-time later that year. I decided
that Zappos was going to be the universe that I wanted to help envision and
build. It would be the universe that I believed in.
My search over the past few months was finally at an end. I had figured
out what I wanted to focus on for at least the next few years. I had
discovered my new passion.
I was passionate about proving everyone wrong.