The Baby Billionaires of Silicon Valley

Written by David Kushner, Rolling Stone

Thursday November 16th, 2006

“Did someone order a lap dance?” It’s after midnight at the sleek Redwood Room club in San Francisco, and a towering transvestite in a slinky red dress and black feathered hat is coyly propositioning a table of nervous young dudes. Nearby, a bachelorette party of hotties in microminis strut into the club. The bride-to-be wears a veil stitched with glow-in-the-dark condoms. One of her friends appears to be wielding a large dildo. Another simulates a blow job on a guy in a giant king’s chair in the lobby.

Such displays would be seen by most guys as some kind of opportunity. But the richest guys in the bar cower together at their table like Weird Science geeks at the high school prom. The wilder the scene gets, the more oblivious they become. When no one takes the tranny up on her offer, she swishes her extra-large gloved hand in the air and fades dejectedly back into the crowd. The guys reach in unison for their drinks. “I can’t spend any money on transvestites tonight,” one deadpans. “My venture capitalist wouldn’t be happy.”

As the rising sons of Silicon Valley, this crew has billions to blow. Each of them is sparking an online phenomenon that’s radically transforming our culture and industry. The slight, redheaded twenty-two-year-old in ratty jeans and zebra-striped Adidas sandals is Mark Zuckerberg, founder of Facebook, the social-networking site valued at as much as $2 billion. Nursing a drink across from him is Blake “Microsoft Killer” Ross, a sweaty twenty-one-year-old with a pubescent mustache and stiff, maroon buttoned-up shirt; Ross hatched Firefox, the alternative Web browser that’s been downloaded 200 million times around the world and earned him the title of “the next Bill Gates.”

As the waitress brings another round, Seth Sternberg, the menschy, curly-haired twenty-seven-year-old founder of Meebo, the instant-messaging sensation, reports that Chad Hurley, co-founder of YouTube, the viral-video powerhouse that would soon sell to Google for $1.65 billion, is hoping to swing by — if he can break away from his wife and kids. “Chad has a family now,” Sternberg quips, slicing his hand against his throat. “Once that happens, you’re out of the group.”

Every so often, an unexpected pop-cultural youthquake spawns its power clique, and that’s what’s happening in California this endless summer of silicon love. As the YouTube buyout in October signified, Silicon Valley is on fire again. Giddy venture capitalists have already broken a five-year record by pumping $13.4 billion into startups. Ron Conway, the legendary investor known as the Godfather of Silicon Valley, describes the party mood as “borderline euphoria.” And the scrappy prodigies at this bar are the main reason. “Through these entrepreneurs,” says Conway, “you can see the future.”

Together, they stand for a place where all Americans are intuitively, and seamlessly, online, where the Net is less a destination than an inextricable extension of our lives — from the entertainment we choose to the social networks we form. Partly due to the combined efforts of the guys in this room, the long epoch of top-down culture — when publishers, producers and DJs could dictate the tastes of a generation — is fading faster than anyone predicted. The more vibrant world is bottom-up, powered by the people. Make a video, put it online; download a song, remix it, put it back up; hack a computer game, share it with friends. With cheap computers, free software, broadband access and enough Mountain Dew, a kid with a dream can sit down and make it all happen. And while that’s scaring the shit out of everyone who thought they understood — and controlled — the culture before, it’s just plain obvious to the generation leaving them behind. “What the old guard is missing is that this doesn’t feel like a revolution to us,” Ross says. “It feels like common sense.”

But there’s a price to be paid when you turn the world upside down. As these post-crash babies understand, the future isn’t necessarily boundless. Though most were barely out of high school at the time, they all know what happened in the first Silicon Valley boom of the 1990s. Wide-eyed startups like Pets.com, Kozmo and Napster burned through hype and money without serving up that one crucial thing — a viable business plan. This new crew is struggling to avoid the same mistakes of excess, indulgence, selling out too soon. “We know the reasons the generation before us went over the cliff,” offers Zuckerberg.

That’s why they’ve gathered here tonight. This is one of the first meetings of a secret society they formed and jokingly called the Young Guns; a more apt moniker might be the Valley Brats. It’s an invite-only cabal of the most powerful under-thirty-year-old mavericks in town. Every few weeks they gather to drink, plot global domination, make friends and, mainly, just act their age. “We got sick of hanging out with older guys,” says the Brats’ gregarious founder, Rob Pazornik, twenty-six-year-old creator of an online shopping startup called LicketyShip. “All they talk about is mortgages and nannies. It’s like hanging out with your dad’s friends.”

But this geek frat isn’t just about swilling drinks. It’s not even much about business: It’s a grasp for connections and control. Behind the meteoric hype is a group of ambitious young guys, fresh from school, being forced to grow up really fast. “Social life?” Sternberg says. “This is it.” Now they’ve got the future on their shoulders, and they’re doing everything they can to stay true to their grand visions and survive. “It’s incredibly stressful,” says Ross. “People around here see us as iconic figures, but we’re just college students who got thrust into this role.”

When Google handed YouTube $1.65 billion last month, it focused the world’s attention back onto this mythological place called Silicon Valley. And for good reason: Hurley and his co-founder Steven Chen (the third co-founder, Jawed Karim, is now at Stanford University getting a degree in computer science), took the fastest meteor ride in Internet history, blazing from concept to the billionaires’ club in just under a year. After meeting as grunts at PayPal, the online payment site, Hurley, who was working as a graphic designer, and Chen, an engineer, pulled all-nighters inside Hurley’s garage to launch a startup of their own. The idea came after shooting video at a party and realizing there was no easy way to post it online. “It was a problem that everyone faced,” Hurley explains to me in his San Mateo office. So they fixed it. “It was pretty simple: We removed the barriers for people to upload videos.” No-brainer. And the Northern California Gold Rush was back on.

When you get to Silicon Valley, the first thing you notice is that it isn’t much of a place after all. Dot-coms are scattered in mirrored buildings along the forty-seven-mile stretch of Highway 101 that burns from San Francisco to San Jose. Urgent people with silvery Bluetooth earbuds zip past one another in shiny, tiny cars. Aside from the occasional refueling at a roadside Peet’s Coffee & Tea, it’s strange geeks passing in the night. If you want to make friends — people you can really trust — then you’ve got to work for it. Just ask the Brats.

They came from all corners of the Valley just to dip nachos this evening. Zuckerberg operates Facebook from an office on University Avenue, the leafy strip of restaurants and bars near Stanford in Palo Alto. Ross codes alone out of his crowded apartment in Mountain View, fifteen minutes further south. Todd Masonis, unshaven, dark bags under his eyes, twenty-six-year-old genius coder of Plaxo, the smart online address book, runs his operation down the way. The YouTube crew toils out of a mouse-infested loft above a pizza joint thirty minutes up the road. It hardly resembles the mythical Oz these guys dreamed about as kids. As YouTube co-founder Steve Chen, 28, recalls, “I thought they literally had skyscrapers made of silicon chips here.”

Over drinks at the Redwood Room, they swap stories of their migrations. In some way, each exhibited an early DIY passion and a healthy disdain for the status quo. “Would it have been possible for someone with more experience to have started a Facebook or YouTube?” says Chen, who sports spiky dark hair and silver hoop earrings. “[Older people] bring a sense of hesitation into doing something untested. We’re willing to experiment and take risks. That’s what we share with other twentysomethings.”

When they arrived at the tail end of the late-Nineties boom, they quickly realized their predecessors seemed more interested in cashing in than breaking ground. “Their business plans were ass-backwards,” Pazornik says, “and the excess was, like, totally out of control.” Pazornik, a square-jawed guy with a backward Yale baseball cap, raises his voice above the hip-hop music in the bar and tells the guys a cautionary tale. One night in 2000, he went to a geek bash. To hype their new product, some startup guys had transformed a warehouse into a rave. They hired dancing girls, DJs, put on a cheesy light show. For the finale, fog machines blanketed a stage in smoke. And then the guys wheeled out . . . an empty purple box. The big plan was to sell those boxes online. Boxes that, um, you would put outside your house to collect your FedEx packages. Yes, it was ludicrously dumb. Pazornik recalls gawking at the overkill — the hot girls, the lights, the fawning venture capitalists — and having one thought: “Man, this is crazy.”

In geek-speak, hype that never materializes is called vaporware. The nascent Brats share a passion for creating something that will last. They found an audience by tapping a personal need. Ross, an earnest and self-taught prodigy, created Firefox after getting frustrated with the incessant pop-ups and viruses associated with Microsoft’s ruling Web browser, Internet Explorer. Zuckerberg made Facebook as a way for students to keep in touch with one another online after his university, Harvard, dragged its heels on a promised student directory. Pazornik created LicketyShip, a shopping site that one-ups Amazon by offering same-day deliveries, after he ran out of ink while printing a term paper at Yale. “Each of us is running a company that is intended to change the game,” says Pazornik. “We’re not making building blocks, we’re making explosive technology.”

And in a serendipitous flash, the walls around each of the Brats came crashing down — and sometimes left them bruised in the process. Ross, a mama’s boy who dreamed of writing children’s stories, developed Firefox in consort with legions of coders in the free-software community online. Firefox quickly rose from program to religion, sparking a grass-roots uprising of surfers tired of Microsoft’s buggy browser ruining their days. When version 2.0 debuted last month, it was downloaded over 2 million times in the first twenty-four hours. Suddenly, all the dot-com excess Ross had heard about zeroed in on him. Venture capitalists were taking him out for fancy dinners. He made it onto the cover of Wired. Meanwhile, a backlash had started among the free-software geeks. Theirs was a people’s movement, and they resented how the media centered the story on Ross, the whiz kid. “It’s simply a mischaracterization of the worst kind to suggest that Blake single-handedly created Firefox,” blogged Chris Messina, a high-profile coder who worked on Firefox and Howard Dean’s DeanSpace campaign. “And it ignores the real story, which is that open source is an available, alternative model for developing high-quality product that meet real-world users’ needs.” Ross took the criticisms hard. Success felt “like a curse,” he says. “People imagine I must be enjoying all this. . . . But it’s very hard to enjoy something when you know there’s a community of people upset that they’re not getting the press you are.”

Zuckerberg, a shy kid from tiny Dobbs Ferry, New York, was having an even tougher time with Facebook’s success. “There aren’t a lot of CEOs who are twenty-two,” he says, “so you don’t get to talk to many who are in that position.” What started as a lark in his dorm room had become a major operation in Palo Alto. More than a hundred kids were suddenly working around him in an office across the street from the original headquarters of Google. The press was calling. Money moguls circling. One investor, Peter Thiel of PayPal fame, bought him a jet-black Infiniti FX35.

Every time Zuckerberg shrugged off rumors of buyout offers, however, people thought he was either nuts or greedy. In October, word on the street had both Yahoo and Google as potential suitors, with numbers hovering upward of $2 billion. But Zuckerberg has insisted all along that he’s simply trying to build the best “no-brainer” site he could — for now with little or no outside interference. “For me, it’s about keeping focused on what we’re doing, which is building something long-term,” he says, “regardless of the numbers that people are throwing out.” With all the doubters, in and outside his company, though, maintaining this party line can be “emotionally sapping,” he says. For salve, he clung to the college lifestyle as best he could, living in a student apartment with little more than a mattress on the floor and a lamp. It didn’t work. Unable to sleep, he’d head out alone into the night, driving the Palo Alto streets listening to his Weezer CDs, trying to find some calm in a life spinning like a midway Himalaya ride.

One by one, the Brats had split their nowhere towns, dropped out of Ivy League schools and road-tripped to the Valley to change the world, but they were finding themselves increasingly at sea. By early this year, the wave of enthusiasm around this new generation was mounting. And the entrepreneurs riding highest decided it was time to make a lifeboat.

In February, Noah Kagan, a partner in OneClickTennis, an online site for Bay Area tennis players, convened a panel of young CEOs called Entrepreneur27. As the featured guests on the panel, Pazornik met Ross and Masonis. They stepped into the room to find it jammed with hacker geeks in graphic tees just like them. Though the panelists were familiar with one another’s startups, they hadn’t met in the flesh. But they had mutual friends and acquaintances — Zuckerberg, Sternberg, Hurley and Chen. The more they talked, the more they found they had in common. “We could go out and buy a Ferrari tomorrow,” Pazornik says, “but we’d rather change the way people live.”

They also share a mutual respect. “Blake had done this amazing and powerful thing,” says Pazornik. “He one-upped Microsoft!” Sternberg idolized Zuckerberg. “Mark has this amazingly clear insight into his users,” he says. And each of them could learn from Masonis, who had been navigating the murky waters of venture capitalists the longest.

So Pazornik had an idea. Round up the others. Let’s start a band.

After pazornik floated the idea of forming a secret society, the Valley Brats hit their IMs and started texting their like-minded pals. They met for the first time as a group in June at a Palo Alto dive. It was awkward at first, since they had little experience shooting the shit for fun. To break the ice, they came up with their version of a fraternity handshake: removing the batteries from their cell phones and slamming them on the table. “I suppose we could just turn our phones off,” Zuckerberg says, “but this makes more of a statement.”

At first, they made small talk, kicking around their common celebri-geek experiences. “We talked about photo shoots,” says Ross. “Yeah,” snickers Zuckerberg like Beavis, “photo shoots suck.” They talked about the pressures, and the harsh reality that getting millions from venture capitalists doesn’t make you rich. Just like in the music industry, venture capitalists want a heavy return on their investment, which means these guys pinch pennies until they bleed.

While collectively valued at roughly $4 billion, few are making six figures. Fearful of blowing their wads, the Brats don’t sit around ordering Dom Perignon, they compete over how cheap they can be. Matt Sanchez, a twenty-five-year-old behind a startup called VideoEgg, is buried in student loans. Pazornik treated himself to a forty-dollar punching bag. Zuckerberg splurged on a $100 amp. “The only other things I’ve bought myself are a sword and a teapot!” he brags. Yet everyone from their parents to the wanna-be geeks jamming the Entrepreneur27 assume they’re loaded. “It’s ridiculous,” Ross confided. “Even my mom thinks getting $10 million [from investors] makes me rich.”

These days, when they’re not together as a group, they hook up informally around town. Pazornik and Sanchez soon became the designated frontmen of the group: gregarious, sociable, laid-back. Zuckerberg and Ross, the resident Jedi masters: quiet, stealthy and insightful about how to focus on building a product while resisting the urge to sell out too soon. Power schmoozer Sternberg and egghead genius geek Masonis, middle school friends from Connecticut, are a dynamic Odd Couple.

By mutual consensus, they decided to draft the YouTube guys into the group. They all looked at Chen and Hurley with a mixture of awe, admiration and, perhaps, a bit of envy. “They created this amazingly viral, ubiquitous thing,” says Masonis. “It’s something we’d all like to do. I’m dying to know how they did it.”

One hot day in San Mateo, a half-block from the YouTube loft, Chad Hurley ducks into a sports bar for a breather. “Nice and cool,” he says, sighing. With his longish blond hair and casual drawl, he’s like a brainiac Jeff Spicoli. It’s still weeks before the Google deal will be announced, but Hurley is already feeling the heat.

Like Zuckerberg and Ross before them, Hurley and Chen spent the bulk of this year being courted by every financial player in the business. With no advertising, the site has hit an astounding 100 million video plays per day, accounting for sixty percent of all videos seen online. In July, Hurley jetted to investment bank Allen & Co.’s annual Sun Valley soiree in the Idaho mountains, where he was the It boy of the scene. As rumors of a buyout swelled, he shrugged off the attention with the standard refrain: “We’re just focused on building a great company.” Then, of course, he and Chen sold the farm.

Now the rest of the Brats are dealing with the fallout — none more than Zuckerberg. For now he’s focusing his time on adding new features to Facebook, including one that feeds customized news to members, and is still touting the now familiar anti-sale line that has become part of the collective persona of this group: “Once one person sells out, it ruins everyone’s credibility,” Zuckerberg tells me a few days after the YouTube deal. “When people say I’m greedy, they’re missing that I could already have more money than I’d know what to do with. I have a mattress on the floor. I don’t even calculate what I’m worth. It’s too much. I’d give it away.”

Privately, some of the baby billionaires whisper that YouTube’s owners might have sold out too soon. Despite Google’s massive investment, YouTube has well-documented flaws — most notably, the influx of copyright-protected material that makes its way onto the site. Tech blogger John Battelle compares a YouTube purchase to “buying a lawsuit.” Net entrepreneur Mark Cuban called any YouTube purchaser “a moron.” Chen and Hurley, whose PR rep says she spends the days “putting out fires in the press,” haven’t devised a convincing response about the long-term viability of YouTube. They admit there hasn’t been much time for reflection. “There’s always been, like, eight balls in the air,” Chen says.

While the other Brats disdain prepackaged publicity, YouTube is becoming a slick spin machine. Julie Supan, senior director of marketing at YouTube, is quick to separate the guys from the other startups. “We’re don’t see ourselves as Web 2.0,” she says. “We’re Web 3.0!” The Brats don’t resent YouTube’s success, they fear it. “All anyone really cares about in this town is hype and momentum,” says Masonis. And that can raise expectations to a deadly height.

The pressure cranks up only once the venture capitalists and eight-figure evaluations start rolling in. No one knows this better than thirty-three-year-old Roelof Botha, boy-wonder partner at Sequoia Capital, one of the Valley’s oldest and biggest venture-capital firms. The plasma screen in Sequoia’s icy-cool and windowed lobby shows a montage of the whiz kids the company has funded in its thirty-plus years — the Apple guys, Yahoo, Google and, most recently, YouTube. Visitors are greeted by gorgeous assistants in tight skirts with steaming mugs of coffee at the ready. They have reason to igpress: Tasked with finding the next gen of moguls, Botha is sinking millions into new Web startups. But, having worked as chief financial officer of PayPal during the bubble and crash, he’s all too aware that history may be repeating itself.

“There’s too much money chasing too few deals,” says Botha, a South African who favors sharp charcoal slacks and pinstripes. “Companies that shouldn’t get funded are getting funded. Evaluations are getting driven to unrealistic levels.” If a company is valued at $2 billion, then investors are going to expect an according payoff back.

“Every VC has dollar signs in their eyes again,” Ross observes. “It’s good for raising money, but it’s bad because every VC is looking for another enormous home run in the time frame that YouTube did it. There’s more pressure to have a really big exit plan pretty quickly.” The higher the bar across the Valley rises, the more fearful people get of another crash.

But even weeks before the Google pact, the YouTube guys have been playing it cool. After Hurley’s lunch at the sports bar, he strolls back to the YouTube office down the block. While the rest of the Brats hang on to their makeshift frat, YouTube is the real deal — which may explain why Hurley and Chen, despite their invites to the Brat gatherings, have yet to show up. The YouTube office is a big, messy loft that looks like a fantasy dorm. There’s a Hendrix painting on the wall, hot young girls in booty jeans at their PCs, an air hockey table in a conference room. A fat guy loudly barrels into the john, inviting others to join him. “Bathroom party!” he yells. But no one comes.

The stars are out over the valley, and the Brats are just getting started. Pazornik and Sanchez announce that it’s time for a round of pool at a nearby dive. Zuckerberg rolls his cell-phone battery in his hand. Newly legal Ross stops cold on a street corner, quickly rifling through his wallet for his ID.

At the same moment, millions of people are living in the new world they’re forging online. Sixty million messages are flying around Meebo. Firefox has been downloaded more than 200 million times in two years. Facebook has more than 11 million users. One hundred million videos are being viewed on YouTube. It’s lifestyle evolution, pure and simple. And that’s what truly compels the Brats. It’s not about taking over old media or stealing stuff online. You don’t think about selling out or cashing in or getting sued. You just look around your world and see what’s missing. Then you fire up your PC and build it.

“That’s what’s cool about being with these guys,” Zuckerberg says, with a wrinkle of his brow. “Young people are a little raw. They don’t have all the experience and bias. So a lot of what they think is just based on what they’re trying to do — and a lack of being told or shown that they can’t do it. We’re on this path because this is the path we put ourselves on. We’re showing what young people can do.”

As the pack heads off into the night, he hurries up to join them.