How VC as a system helped transform nonprofit to major internet infra company
1987: UUNET began as an obscure Northern Virginia nonprofit, founded by Rick Adams, a government engineer at the Center for Seismic Studies. The mission was to provide internet access to private-sector scientists excluded from the government network.
Early Days:
- Adams worked part-time while keeping his government job
- Used Cisco routers and networking software to build cheaper connections
- Charged only enough to recover costs
- Initially operated under nonprofit status
1992:
- Mitch Kapor visited Washington to meet Adams in August
- Kapor wanted "skin in the game" and offered to be a bridge to venture investors
- Adams was initially suspicious of VCs but appreciated Kapor's idealism
- Eventually accepted Kapor's investment
1993:
- Kapor approached Kleiner Perkins first, but they declined
- Through various connections, Accel got interested via Don Gooding and Jim McLean
- Metropolitan Fiber Systems made a competing offer of $500,000 at $8 million valuation
- After competitive pressure, Accel, NEA, and Menlo Ventures jointly invested $1.5 million in October
- Peter Barris from NEA emerged as the key hands-on investor
Late 1993:
- Discovery of $750,000 in unpaid invoices nearly derailed the company
- Joe Squarzini (hired from GE) helped stabilize operations
- VCs provided another $1 million lifeline in December, though with tough terms
1994:
- Barris recruited John Sidgmore (another GE veteran) as CEO
- Sidgmore received 6% equity stake
- Company began raising additional venture rounds
- Secured contract to build Windows 95 network infrastructure
1995:
- In January, won Microsoft contract
- In February, secured AOL contract
- May: Went public at $900 million valuation
- Metropolitan Fiber later acquired control at $2 billion valuation
Results:
- Accel made $188 million (54x return)
- Menlo received similar returns
- NEA made even more by holding longer
- Adams personally made $138 million
- Rick Adams later thanked Kapor for "nudging me in the right direction"
Key Players:
- Rick Adams: Founder
- Mitch Kapor: Initial investor/catalyst
- Peter Barris (NEA): Key operational VC
- Joe Squarzini: Brought operational discipline
- John Sidgmore: CEO who scaled the company
The story highlights how venture capital as a system helped transform a nonprofit into a major internet infrastructure company, despite individual missteps along the way. It exemplifies the value of professional management, the importance of competitive pressure in fundraising, and VCs' ability to weather early crises.
