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The Dot-com surge

Startup Fame

In 2001, Jehane Noujaim and Chris Hegedus premiered their documentary at Sundance Film Festival. The documentary chronicled the rise and subsequent fall of the little known startup, At the time of the film’s premiere, two thousand miles away in New York, financial traders scrambled to adjust to a stock market in free fall. Across millions of homes around the globe, people saw their savings dwindle to nothing. As the credits rolled at Sundance, there could be almost no better capturing of the moment. The documentary collected hundreds of hours of footage and candid interviews with govWorks founders and their families, employees, and investors as they rode a wave of euphoria to the very top of the dot-com era.

The film opens with Kaleil Tuzman standing outside the Goldman Sachs building in New York City, having just quit his job there. Bright-eyed and excited, he packs his car and heads out west to “start an Internet company” with his high school friend and IT specialist Tom Herman. Tuzman and Herman have a simple plan and grand ambitions—to make government forms and payments, a tedious and in-person process, something entirely digital and easy.

In 1983, Charles P. Alexander penned an article for Time magazine called “The New Economy,” describing a transition in economic growth from industry to technology. In the ’90’s, that theory picked up steam and the emergence of the Internet and the web only strengthened its belief. The thesis of the New Economy was grounded in the idea that with new technology comes significant productivity gains, and that the economy would surge as a result. As economist Mariana Mazzucato describes it, “somehow economies because of the great productivity enhancement that the IT revolution brought about that we could somehow even avoid the business cycle. No more busts. Just booms.”

By the late 1990’s, the principals of the New Economy had become unquestionable canon. Nearly overnight, a booming industry of dot-coms swept through Wall Street founded on the premise that the goods and services of everyday life could be digitized and re-commodified online. They were emboldened by a Federal Reserve led by Alan Greenspan, who preferred an approach of letting the market self-correct (sometimes called the “Greenspan put”). Most of the new dot-coms modeled themselves after Amazon, at least superficially, and operated at a loss while bringing on new investment and scaling up in an attempt to overtake a single market.

Tuzman and Herman had started a company with all the hallmarks of the New Economy dot-com. Shortly after he arrived in Silicon Valley to start his company, shows footage of Tuzman in a hotel room with Herman and one of their investors. “I decided to do what I always do with big decisions and sit and meditate,” says Tuzman at one point, stone-faced and contemplative, “and I decided that we are…”

Kaleil Tuzman and Tom Herman, the stars and co-founders at the center of pictured giving a speech at one of their startup parties.

The dot-com in the name was actually pretty important. As it turns out, adding .com to the end of your company’s name was a sure way to bring on new investment and a much higher valuation than in any other industry. In her book Bull: A History of the Boom and Bust, reporter Maggie Maher put it simply. “The interaction between an incredible outpouring of financial innovation and a once-in-a-couple-of-generations technological revolution created a dangerous situation.” This was an environment with eager founders and even more eager investors.

Investors were all too happy to snatch up dot-coms and quickly turn them around to go public with an IPO, which gives them a near-instant windfall. In traditional industries, it might take decades before a company was ready to go public. But after Netscape it proved they could have one of the biggest IPO’s in history in less than a year, that window continued to close. Michael Barach, former CEO of, remembers getting phone calls to go public before he had even fully moved into the office. He remembers thinking, “You’re sitting there with your box going,” he recalls “should I buy furniture, or should I talk to an investment banker and go public?”

So of course needed the .com in their name. Otherwise, wouldn’t be an internet company. And they wouldn’t be entitled to any of its cash. As the film moves on from the startup’s humble beginnings, it follows Tuzman as he drives from one venture capital firm to the next. Most days, he’s spending more time in the offices of investors than in his own office building.

Sometimes, he would get lucky, and a round of investment would come in, or an investor would agree to look over a term sheet.

Most of the time, however, he was shown the door, told that his idea was being replicated elsewhere. That was already months behind. But he, and Herman, were young, and ambitious. And they weren’t ready to give up. At one point, Tuzman’s girlfriend (and later in the film, ex-girlfriend) remarks sarcastically, “You see a whole bunch of guys acting very grown up… they’re such grown-up gentlemen. But you know what, they’re not!”

If you were to look around at the founders and executives of the late’90’s Internet startups, the first thing you might notice was how young everyone was. The information age, after all, was mastered by a new generation of college graduates who felt they were a part of a revolution. The finance flooding in needed young people who both understood a still very-new technology and were willing to stake their futures on it. And young people hunting for a revolution needed the finance.

The media hyped the revolution as well. Formerly dry business network channels like CNBC became daily viewing. Every day, there’d be hours of television tracking individual companies and stocks, urging viewers to buy or to sell. And even without that, there was a newspaper article about some company striking it rich. At one point, ABC anchor Betsy Stark claimed “some say the Internet is so revolutionary that the usual roles for valuing a stock, such as revenues and earnings, no longer apply.” It was hard not to buy into the hype.

Even everyday people got swept up in the fervor. The early 90’s also brought new, digital options for day trading, and gave many people greater control over their 401ks. Someone might hear about a co-worker or neighbor who struck it big on some dot-com IPO. It was easy to succumb to the bandwagon effect and hop on two, unloading personal savings and retirement accounts into the rapid gains of internet companies.

govWorks was no different. Its founders were pushed into the spotlight and given a lot of power very quickly. They were all true believers of the revolution. Tuzman even graced the cover of a magazine, billed as the “leader of the revolution.” He hosted a panel next to Bill Clinton.

The greatest tragedy of, however, was how late to they were to start. By 1999, the bubble was already inflating. Their company ballooned but was never able to see much revenue. First one co-founder was pushed out. Then another. And soon Tuzman was left alone as the company fell apart before they could reach the almighty IPO.

A Day in the Life

Every morning at 8:30AM, a full hour before the market opened on the New York Stock Exchange, The Squawk Box on CNBC aired. The Squawk Box was the centerpiece of CNBC’s lineup, a channel which had only been around a few years. It’s daily pre-market coverage tried to make stocks exciting, to blend entertainment and business news. More often than not, the program actually succeed.

Mark Haines anchored the show. He was a twenty year veteran of local news in Philadelphia (and, according to one report, Cary Grant’s favorite reporter). He brought a more direct and grizzled presence to the program. He was flanked to his left and to his right by Joe Kernen and David Faber. They each played the other’s foil, bantering back and forth, almost always heatedly disagreeing about market wins and losses. The trio would frequently bring on guests to contrast with the news. On a lucky day, they’d be able to spotlight an IPO.

Credit: CNBC

Just before 9:30, when the markets officially opened, they’d throw it over in studio to Maria Bartiromo on the floor of the New York Stock Exchange to report live as the opening bells rang. Bartiromo began her career at CNN, covering the bull market of the 1980’s and early 1990’s. In 1993, she was the first news anchor to report live from the floor of the New York Stock Exchange, where she’d check in every day on The Squawk Box. “It was very exciting—a new, instantaneous way of reporting market news,” she would later recall, “we immediately had a big following.”

It was all somewhat of a spectacle. And for the average person, it was hard not to get swept up in the hype.

And it wouldn’t last much longer…

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