How I Screwed Yasser Arafat out of $2mm

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But I lost $100mm in the process…

I needed to make one hundred million dollars pretty fast. You know how it is. There are bills to pay. There are things you want to do in life. I wanted, for instance, to work as a cashier in a bookstore. But with a twist. I would own the bookstore. I wanted to do a 90 second ad in the SuperBowl which would just be me walking around for 90 seconds saying and doing nothing. People would argue afterwards, “he could’ve used that money for charity. How selfish!” But I wouldn’t care. It was my money and I could do what I want with it. I would be teaching this grand lesson to all the people watching the Superbowl. I had no other specific desires about what I would do with one hundred million dollars. Just those two. But I knew more things would come.

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At the time (1999) I had recently made money selling a company in the web services business. Among other things, my company made the website for the movie, “The Matrix”. I knew I was Neo but I wouldn’t be able to take the red pill until I had my first hundred million. That was the pill that would let me be a real person. The pill that would allow me to be fully alive.

So I came up with an idea. It was a catchphrase and I would use it many times over the next six months. “First there was the wireLINE internet. Then there was the wireLESS internet. Which would be ten times bigger.”

Those three  sentences (or maybe its one if you use commas) were my path to $100 million. Here’s what you do then once you have your catchphrase. I had a business partner who wasn’t shy. So he called up 20 companies in the wireless software business and said, “We want to buy your company.” We had no money to buy anybody but if you ever let that slow you down you might as well run around naked in a football stadium with 60,000 people watching you.

One company responded. A company called “MobileLogic” out of Denver. They flew in and we took them out to breakfast at the Royalton Hotel on 44th Street. Its a fancy breakfast place. The sort of place Rupert Murdoch orders the pancakes, chews it up, spits it out without swallowing, and then orders granola to be healthy.

We’re all sitting around a table. “Its fortunate that you called,” the CEO of MobileLogic said to us. “Since Ericsson just offered us seventeen million and we’re thinking of taking it.” “Why would you take that,” I said. “We’ll offer you twenty million, half cash, half stock. That stock alone will be worth one hundred million or more once we go public. We have five other companies we’ll buy after you. You’ll be President of a major company thats going public, pronto. Ericsson is the old generation. Be apart of something new and exciting.”

Vaultus Mobile Technologies

(eventually we spent $50k on a branding company who changed our logo and name to Vaultus)

I love the pancakes at the Royalton. They whip the eggs into the batter. Its fluffy and delicious. And the bacon is thick and the bacon juices spill into your mouth as you bite into it. Life was good. Jerry Levin might very well have been at the table next to us buying AOL right in front of our eyes. Thats how good life was then.

They took our offer. We quickly wrote up a binding LOI which they signed. We negotiated their salaries, their options, their earnout, everything. Now we needed to pay them twenty million dollars. We knew we could pay half the twenty in stock. So that was easy. That was a piece of paper. Now we had to come up with the other ten.

No problem. Because suddenly I had a real asset. I had a binding LOI for a company with $5-10mm in revenues (despite my propensity to remember every detail of my childhood, I can’t remember how much in revenues this company I was buying in 1999 had). There were companies going public then with zero dollars in revenues that were now worth over a hundred trillion dollars.

So, with some partners who were excellent middlemen I started going to potential investors. Mark Patterson, who was then vice chairman of CSFB and is now the head of multi-billion dollar hedge fund Maitlin-Patterson set up a conference call with a few small investors. One call he set up was with Henry Kravis, Leo Hindery, Jim McMann (CEO of 1800-Flowers) and Dennis something or other who just sold a huge Irish telecom company and was worth a random billion or so. I gave a fifteen minute talk. I described my background and the company I had sold. Then I used my catchphrase (see above) and scoped out the opportunity (“10x the size of the wireline internet”) and that was the call. Henry Kravis asked a question. I can’t remember what it was now because all I kept thinking was “you were the barbarian at the gate and now I’m the barbarian.”

Right after the call, Mark Patterson’s phone started ringing. Mark told me, “Henry wants to wire  five million right now.” But we only took one from him. Too many other people wanted to invest. Everyone on that 15 minute conference call put in one million each.

Barbarians At The Gate DVD Cover

At another meeting to raise money, I had to describe what we did. I wasn’t even totally sure what MobileLogic did. We protected data that was in corporate databases but was being sent out to the salesforces through wireless devices that we set up. It was pretty solid. I said, “the data goes to the satellite and then comes down to our devices.”

“I thought the data didn’t go through satellites. Doesn’t data go through cellular towers?” someone named Mamoon asked.

Uh-oh. That seemed to make more sense than satellites. “Sometimes,” I answered.

And they put five million in. Frank Quattrone put money in. Sam Waksal, Allen & Co. CMGI. The list goes on. We were the hot investment for three seconds. One guy who had initially rejected us but then saw the list of investors called me at two in the morning and said, “please let me put in a million.”

So we closed on thirty million dollars and bought our first company. Then we bought a second company. A consulting company called Katahdin. They had nothing to do with wireless but they had profits. We’d bury them in the IPO story but make use of their profits. Then we bought a third company. I can’t even remember their name but they were a spinoff from MIT. Right away we were getting calls. Aether Systems wanted to buy us but we said no. They only wanted to pay fifty million for the company. A banker at CS First Boston told us he could get us seventy five million no problem. But we didn’t even listen to him. In the elevator we laughed at him. What an old fool! We were going for an IPO.

Every bank came in with a powerpoint and a team of young people to pitch us. Goldman, CSFB, Merrill, Lehman, etc. CSFB was the front runner because Frank Quattrone was an investor but Merrill made a strong pitch. The pitch was funny. The top Merrill banker was there. He said to the associate on the deal, “John, walk them through the numbers.” And John said, “uhh, my name is Roy”. Two other things I remember from the pitch. The first was, “Henry Blodget will be the analyst on this deal. He loves wireless.” Which made no sense to me since he was an Internet consumer analyst.

The other thing I remember was the back page of the presentation. The beautiful back page. The only page that mattered. It had what my networth would be if we IPOed and the market valued us similar to Aether Systems. I would be worth something like nine hundred million dollars.

I knew exactly what bookstore I wanted to buy. It would be Shakespeare & Company on Broadway. None of the other employees would know that I would be the owner. And I would work just stacking books and being the guy at the cash register. My secret would give me infinite power.

I didn’t know how to be CEO of this company. And because I didn’t really know any of the employees of the companies we were buying I was feeling very shy. I would call my secretary before I arrived at work and ask her if anyone was in the hallway and could she please unlock my office door. Then I would hurry into the office and lock the door behind me.

Eventually they replaced me as CEO. Even later, when we had to raise up to another 70 million, they asked me to step off as a director on the board. At one point I arranged for a reverse merger to occur. We’d be public at at least at a hundred million dollar valuation. But the guy behind the reverse merger turned out to have a checkered past and had spent some time in jail in 1969 for either embezzlement or something to do with transporting fake diamonds. But thats another story.

None of this portrays me in a good light at all. Except for maybe the fact that I was a good salesman during the greatest bubble in world history. But it was decade ago and I don’t mind what people think.

But I did learn several things that became incredibly important to me later.  :

A) if you have to raise thirty million to start your business, its probably not a good business (at least for me). All of my good businesses (businesses that I started that I eventually sold and made money on) started off profitable from day one and never raised a dime of money.

B) Most M&A transactions don’t work. When you buy a company, its very hard to keep the owners of the old company incentivized. 90% of acquisitions don’t work. Build your business. Don’t buy it.

C) A lesson I learn repeatedly: traveling for business almost never generates more revenues. New York (and America) are big enough places to generate revenues. You should never travel. In the course of doing this business I traveled repeatedly to the west coast, Denver, England (to try and buy a company), Sweden (where Ericsson was based), Germany (Ericsson wanted me to show up at a conference for one day), Georgia, Florida, Boston, etc etc. Not a single meeting generated any revenues for the business but wasted hundreds of hours of my life.

D) Hiring smart people doesn’t work if you aren’t smart. Everything ultimately comes form the top down.

E) Spending a lot of money on branding and marketing materials is a waste of money for a startup. If you don’t know who you are, no amount of money will create materials explaining who you are.

F) If you are going to raise thirty million for a business, then raise a hundred million if you can. Don’t turn down Henry Kravis’s five million. It doesn’t matter how badly you get diluted. If you have to raise money, take in every dime you can.

G) MOST IMPORTANT: If you raise thirty million, spend none of it. Warren Buffett once said, “if you know a business will be around 20 years from now then its probably a good investment.” With thirty million we could’ve stayed in business for 20 years or more and eventually figured ourself out. Instead, I spent forty million in the first month or so. I learned a lot, and over  a hundred million was lost.

Eventually Vaultus (the name of the company. I think i forgot to mention it until now) was sold to Antenna Software. I made no money, as I rightfully shouldn’t.

Four years later, I was on a train to Boston with my business partner. It was 5 in the morning and we were going up to visit a hedge fund we were invested in. He was reading Bloomberg magazine. “Holy shit,” he said, waking me up. He showed me an article in the magazine. It was about Yasser Arafat, who had just died. Turns out he had a front corporation that was making various investments for him from the money he had somehow made off of the PLO. His largest (or second largest ) investment was two million dollars he had put into a “New York company, Vaultus, Inc.”. I can tell you for a fact his estate lost that two million. So, as they say in Brooklyn, it was good for the Jews.

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  • Nice story

  • This would make such an interesting book, and yes, the bubble was “the greatest bubble in world history” – especially when you could throw $1000 at the stock market and have $10000 come flying right back at you.

    Thank you for sharing your story – it did take an incredible pair to pull that off.

  • Some dude


  • Jsinger

    This is amazing James. What a small strange world.

    I am an owner of small company that develops, deploys and supports a CRM application.

    About 3 years ago….We wanted to Mobilize our CRM app and had Vaultus write an application where the data from our software application could be used on Blackberrys.

    Everything was going great until Antenna bought them. Needless to say….we no longer do business with Vaultus.

    They had some great people who got eaten up in the merger. Anyway…we re-wrote our CRM application so now users canuse it on ANY mobile device and users do not need the 3rd party tool that Vaultus wrote for us.

    Anyway….I read your blog, watch you on the daily ticker, Kudlow and Co. etc….you have been a huge inspiration to me as a guy 36 years old trying to make it happen in the business world. I built this company from nothing….with NO investor funding. Been in bussiness for 7 years and have been profitable from day 1 albeit barely.

    What a small world reading that you were involved in the company that we used to a lot of business with.

    Thanks James

    • Thats great that you have been profitable from day one. Have you ever considered selling the company? Is it still in growing fast mode?

      Also thanks for the anecdote about vaultus. They did have some good people there. Its too bad things got ruined in the merger. mergers seem to always be bad.

  • DrWolfe21

    Dennis O’Brian is his name.'Brien

    and I currently work for him.

    Reading this article is eerily inspring me to definitely start my own business.

    Thx James.

  • Armando

    Dude – I just discovered your website today and your are freakin’ hilarious!!  Love it – great stories!

  • B.

    Wow, that was one of the best reads I’ve seen all year. This is insane!

  • Germán Quintero

    It seems I’m late to the party, but what a fantastic story!!!

  • Love it!

  • This is the first time I read an article by you (shame on me!), I am impressed! The last paragraph  is my favorite!

    • In all my posts, if the last paragraph is not your favorite then I haven’t done my job right. 

  • I’ve owned a coffee shop before, and it’s just as tough as a bookstore. I suggest we both stick to tech ventures! :)

    • Maybe just a little bookstore? When I’m older? Coffee shop seems hard! The one down the street from me opens at 4:30am and the guy’s back is broken.

      • Artie

        You’d make a fortune (not that u need it) if u only sold porn.

  • Rahm

    I recently came to know about you on CNBC and thought you were very funny. This story is a very good recap of what happened in the last bubble… My question to you is, do you think are we now in ‘Bubble 2.0’… with astronomical valuations of Web 2.0 companies? I think an article in that direction will be most useful.

  • I’m amazed by your stories and what you have gone through your investment ventures…

  • Suddenly Sleepless In India!

    After reading this I am going to stop eating the pancakes in India. I am also never going to drink anything here to purify myself, nor ask anyone to disinfect anything for me.

    I thought those pancakes tasted strange, but I assumed it was just the way they like them there….I think I will be sick now. :)

  • The Audacity Of Incompetance

    Very amusing story. Sounds like the plot for an amusing George Clooney film, no offense intended. I’m glad you learned from it, and are relating it to the masses in an amusing way so that people can learn from it.

    Believe it or not, I know of a wild story that beats this one. There’s this charismatic dude I know of, we’ve never met. But he’s one of these guys that, unlike you at that time, has never accomplished ANYTHING in his whole life of any substance. Never managed a budget bigger than his own personal one, never ran anything except his own mouth. Has no experience in much of anything except a very mediocre record in academia. Yet he now runs a major public corporation.Yet on the basis of his mediocre academic career, and having written his own autobiography, a Seinfeldian tome if there ever was one–a book about “nothing” that is. He was chosen by people who never met him and didn’t know him personally to represent their interests on the board of a massive corporation. Once there, since he was utterly out of his depth and probably knew it, and didn’t like confrontation or taking stands on anything, he made an art of avoiding helping the other board members make any of the decisions. His favorite ploy was, instead of voting one way or another on issues of import, to simply vote “present” and thereby duck out of his responsibilities to actually learn something about what it is he was supposed to be doing.
    Was he ever fired for this ducking and weaving and incompetance? No way, due to his connections and personality, these same people recently made him the CEO of that same corporation. He has since taken this massive and previously near bankrupt corporation and thoroughly bankrupted it, probably beyond redemption. He has increased it’s public debt by more than almost all of its previous CEOs combined together, to such a level that to dig the company out of debt at this point is nigh inconceivable. All of his initiatives have met with abject failure to the point that even his most ardent backers are starting to become disillusioned and many have lost all hope. Yet he refuses to change his ways, and is widely believed to be mentally and emotionally incapable of change.

    The huge and rapidly growing numbers of his companies stockholders who never supported him for CEO in the first place are still hoping to change him out for someone with actual experience and competitance. They are hoping to change him out for this hardheaded guy they know of from Texas who has a track record of success at running large corporations and doing so effectively and within a budget. He has done so for many years. Another thing going for him, is that he has never been a drone in academia.

    This guy has been so busy running things and making them work right, that he, sadly, hasn’t had time to write his autobiography yet, even though he is 11 years older and vastly more accomplished, let alone successful, pofessionally than the current CEO who himself HAS written his own autobiography, though he has vastly less life and work experience to point to.Despite the indisputable failure of the current CEO, his stubborn and shallow cronies refuse to admit his systemic failure, as does he himself, and are committed to keeping him as CEO for as long as they can, regardless of his non-existant success rate.And did I mention that, like you, he did this all with OPM (other peoples money), albeit he conducted his version of chicanery on a vast scale, between one and two orders of magnitude larger than the amount of money you managed to lose. And most of the people whose money, present and future, he has poured down the rat hole, unlike your WILLING and well heeled investors, never willingly entrusted a single cent of their money to him, it was all taken from them against their will and the rest was forcibly borrowed in their name, and then spent in their name on wasteful projects they deeply opposed.  So, though your story was informative and highly amusing, I’m afraid that, compared to the CEO in my story, you are merely a piker at this sort of wastefull but amusing craziness. Barack Obama has your story beat every which way from Sunday. However, unlike you, he is a major league self centered narcissist and will be unlikely to ever learn anything from his failures, let alone talk about them publicly for the amusement and edification of the public. And also HIS story isn’t in the least funny.Meanwhile there is a Texas Barbarian At The Gate, lol. His name is Rick Perry and I wish him well.Never Smoke The Hopium! 

    • Jb

      Buhahaha! You’re talking about Obummer, the (wannabe) President of the United States. LOL

    • Jb

      Buhahaha! You’re talking about Obummer, the (wannabe) President of the United States. LOL

    • Jb

      Buhahaha! You’re talking about Obummer, the (wannabe) President of the United States. LOL

    • Jb

      Buhahaha! You’re talking about Obummer, the (wannabe) President of the United States. LOL

    • That all sounded great till the Rick Perry part!

    • Asdfasdf

      Rick Perry? Haha, You’re a dumbass.

    • ABB

      You are the biggest idiot in the world if you believe what you just wrote.

  • Granola is fatty and calorically dense, yo!

  • 2ktngo

    Hi James,

    This one was totally a read. I like watching you on TV, you always say something interesting. I wish I was smarter and listened more. Cheers!

  • How long is two dollar millimeters? One hundred must be a real loss. That’s like a dollar decimeter.

  • ShaneW

    Wow. Man, this sounds like a scam. How is this different from any other Wall Street ponzi scheme? You are buying a company, you have no idea what it really does, you have no money to buy, you are fooling the investors with stories and catch-phrases, you buy a totally unrelated company just to show revenues for the IPO and then you lose it all. You were one of the reason for the bubble and its burst.

  • ShaneW

    Why did you remove my comment? I just said that what you did was a scam and not different from a wall street ponzi scheme. Its not salesmanship, it was a scam.

    • Anonymous

      If you think that this was a scam, then you have yet to learn how the world works.

  • Guest

    and a jew

    • One would think those two contradict themselves. We all know that jews made up the holocaust, don’t we?
      I’d whip up something better, but that’d be outright dark humor.

  • The last part is very funny. 

  • Followed the link from your TechCrunch article. Every part of that story is WILD!

  • hilarious yet informative

  • Anonymous

    So you were basically a 

  • The closing sentence “It’s good for the jews” is one of my all time favorites. It was a huge hit in the 1996 elections in Israel, did it really start in Brooklyn? :)

  • I came here after reading your article on Techcrunch and this article only furthered my opinion of you as a self-important prick and a complete asshole.

  • Another amazing post, and what a finish! ROTFL.

  • HateJews

    Be funny if Arafat’s people come looking for you now.  What do you say to that Jewboy!!!

    • c

      He does n’t have to do anything with assholes like you in the world hating him regardless of what he does

  • Brian

    I lost money investing in Vaultus. Felt like such a moron and I was. I listened to you.

  • truulove

    wow!! What a title for a blog post. genius!

  • The Chutzpah!

  • why did this get kicked off hackernews?

  • nprasanna

    ‘Nobody would say, “I helped a 40 year old today. It feels really good.” ‘ – louis ck

  • Daniel Richard

    You made this high stakes purchases sound easy and way too cool! Totally better than working the daily grind and building a business w/o raising cash while being profitable from day one.

  • Julia Ssr

    I got this creepy taste of greed when I was reading this,, not in a good way

    • Roger Kondrat

      Sounded to me like a young man on the hunt really. I think a young man looking to make his mark/fortune on the world is different than an adult looking to climb to the top (while stepping on everyone else’s head on the way up). One feels grandiose and naïve while the other feels dirty. Maybe they are the same, but one definitely feels different to me than the other.

  • lucas

    James… this post is fantastic! You should write a movie telling this story and sell it to Hollywood. This would make a great movie.

    • Rob

      Certainly more twists and turns than

  • vladimir

    What happened to your business partner that wasn’t shy? I have a feeling he may have had more success later…

  • Harry van der Veen

    Thanks for sharing.

    I disagree with point C, that traveling for business almost never generates more revenue. For our business it almost always does. So I guess it depends on the kind of business you are in.

  • moonshadowkati

    It probably looked like a skull, because the money came from his estate after he died.

  • This as a movie would be epic!!!

  • monymony
  • monymony
  • Hi James

    I hadn’t read this one before, and it’s great – just great.

    You are the consummate story teller.

    Best wishes


  • 4 years later, still coming up with good stuff.

  • Do you know, yours isn’t the first completely batshit insane crazy story I see from a successful businessman (entrepreneur, whatever) talking about his past.
    If anything, it looks to me like the recipe for being successful is being willing to do completely insane things.
    That being said, how is it possible that you were ever shy with women?

  • I care

    Excellent story – but try getting your story across without alienating others.

    • Saul Good

      Who did he alienate? Terrorists? Your statement is weird.

  • JT Theo

    This is one of the best stories of all time. I’m so inspired while amused. I’m starting a software company and I feel like a barbarian!! LOL

  • Andy

    I disagree on some of the “lessons learnt”. Not all businesses are profitable from day 1 – that is a limiting criteria. If you travelled all over the world and sold nothing – you’re not as great a sales guy as you think. New world, new rules – you might want to get up to date on the last 15 years. :)

  • Fantastic post. Inspiring and hilarious at the same time. Thanks for sharing your stories!

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  • Jason Doane

    People don’t respect money that they didn’t earn. I have no issue with building wealth through creative investments but a lot of people lost a ton of money trusting you and people like you as well as good companies that get crushed because of scams like this.

  • mister7ozo

    People don’t respect money that they didn’t earn. I have no issue with building wealth through creative investments but a lot of people lost a ton of money trusting you and people like you as well as good companies that get crushed because of scams like this.

  • Mr MoN

    I got this creepy taste of greed when I was reading this,, not in a good way

  • Really Bro..not many have the balls to do that.

  • Wow, this post is too old but still inspiring a lot, it’s killing me when I read again and again
    keep inspiring us James. Thanks

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