A look at eight AustinInternet companies thatgot their start in 1995BY LORI HAWKINSAmerican-Statesman StaffSince the World Wide Web became theNext Big Thing in the early 199Os, hun-dreds of companies have tried to makemoney with it.Many have fallen by the wayside, un-able to find the key. But others, includ-ing eight started in Austin in 1995, arestill in the game.These eight firms -Austin’s InternetClass of ‘95 -are in the first generationof Internet companies. They are almostcase studies in how business is done onthe Internet. They are being tracked notonly by venture capitalists in Austinand on the East and West Coasts, but alsoby other Austin companies who want tomake a buck on the Net.“People are watching our class closelybecause they want to see what’s work-ing,” says Clitf Sharples, the 33-year-oldcofounder and chief executive of GardenEscape. “We’re all going to find out in acouple of years how companies like usdo.”Their businesses range from a gar-dening Web site to Web systems for do-ing business on the Net.They are trying to claim pieces of thegrowing Internet business market. Ac-cording to Forrester Research, Internetcommerce will grow from $8 billion thisyear to $327 billion in goods and servicestraded between companies in 2002.Even in its startup phases, the Class of‘95 has had an impact on the CentralTexas high-tech economy. They’verented office space, bought computersand hired lawyers, accountants, adver-tising firms and more.The eight companies have created 580jobs and attracted $71.8 million in ven-ture capital.“Silicon Valley has its eye on them,and they are making a good impres-sion,” says Mark Sherman, an invest-ment banker with Robertson Stephensin San Francisco. “In many cases, theSee Lessons, D3Lessons learnea UY ~~~~~~~ r3 IAIbvArruu ----- _Continued from Dlfirst round of money they raisedcame from inside Austin, andlaterrounds have come from leadingfirms outside Austin. They’re on” the radar of venture capital firmsand investment banking frms onboth coasts.”Still, they’ve got a ways to go.: None has sold stock to the public, and few, if any, have reported a3 profit. They’ve changed strate-gies, some of their foundershaveturned over the reins to experi-enced managers and they face thesame hiring challenges larger techcompanies’do.“You can’t call them unqualifiedsuccesses yet, but they’ve done agreat job,” says John Thornton, aventure capitalist at Austin Ven-tures, which has invested in five ofthe eight companies. “They havebeen excellent at building strongmanagement teams and raisingmoney at attractive valuations.It’s a group of companies with a lotof potential.”Few of the eight on our list will-discuss their fmancials, making it2 difficult to track growth or profit-t ability. Considering the long odds; of survival, fewer than 1 in 10 by(tmost estimates, not every membert of Austin’s class may be around; for the K&year reunion.:Here’s a look at the companies’: first years of doing business onInternet,time.fFirst, a disclaimer: The eight: companies profiled in this pack-age are not necessarily the onlyPP4nternet companies created in: Austin in 1985. No on&knows how7 many Austin Internet~firms start-* ; ed that year have come and gone,or how many more are still quietl ytucked away, avoiding the’’ spotlight.. Gaining experience’The pace of change is so fast atInternet companies that an Inter-net year is considered the equiva-lent of seven years of a typicalbusiness’s life. The result can bechaotic, with impulse and adren-alin often beating out planningand execution.Changes - growing from asmall company to a bigger one;switching strategies; recruitingsenior managers - have keptthings interesting and., creatednew challenges.Smart Technologies is an ex-ample of how growth at an Inter-net company works. Two yearsago, the company, which has de-veloped a software system that letscompanies handle sales, market-ing, service and support over theWeb, had three employees. At thistime last year, it had 5.5, and today,155. .Revenues have grown fromabout $1 million a year ago to morethan $10 million in 1987. GoldmanSachs, which invested in thecompany’s recent $10 millionventure capital round, valuesSmart at $80 million.Its early success, industry ana-lysts say, is the result of its abilityto deliver a product that custom-ers, including Minolta, Ziff Davisand Compaq Computer, need andare willing to pay millions to get.Managing that growth hasn’tbeen easy. CEO and cofounder JeffDeCoux, 26, has learned to run acompany while on the job.The company has receivedguidance from mentors includingJimmy Treybig, the TandemComputers founder, and MikeMaples, a former Microsaft exec-utive. But it waited more than ayear to begin recruiting senior‘executives, and it paid a price.“If we had brought on a man-agement team faster, we couldhave avoided the growing pains,”DeCoux says. When you’re add-ing new people every week, andt.Rhz aren’t any processes indown).”communication breaksThe past eight months have‘been spent filling-the posts of vicepresident of marketing, vice pres-ident of customer support and vicepresident of service positions withexperienced executives.“I never realized what a differ-ence that would make,” says De-Coux, who typically arrives atwork at 6 a.m. and stays until 10p.m. six to seven days a week. “Ithas brought an order to things,and filled in the gaps. Now we’restaying ahead of the plays.”It% the marketingFor Steve Madere, the 32-year-old founder of Deja News, the pastyear has been an extended mar-ketingclass.Like many techies who launchcompanies, his focus when at DejaNews, which archives InternetUsenet discussion groups, was onproduct development. Marketingwas a foreign concept at the com-pany, which gets most of its reve-nues from selling banner ads on itsWeb site.“I thought marketing was sim-ply designing brochures and han-dling advertising, but that’s onlyhalf of it,” he says. “I didn’t knowa thing about the part that definesproducts, analyzes the market todetermine pricing and packagingand things like that. I didn’t evenknow those existed.”As a result, his company, whichhas received national news cov-erage for its Web site, ignored thatside of the equation. “We spent ayear with no real product mar-keting effort,” says Madere, whocredits Deja News’ chairman, BobFabbio, with educating him aboutits importance. “Now, strategicplanning is at the