Life in Balance: Amit D. Chaudhary’s Blog
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Startup\Entrepreneur tips from Po Bronson’s Wired article on Sabeer Bhatia of Hotmail from 1998

1. Used a decoy plan to shortlist the Good VCs(Investors)

So in August 1995, Sabeer began shopping around a business plan for a Net-based personal database called JavaSoft. This would become, in effect, the front for the Hotmail idea. With venture capitalists skeptical of the software market - it was too hard to get good distribution and rise above the fray - JavaSoft wasn’t likely to fly, but Sabeer kept showing the plan, and saving Hotmail for those VCs he’d tested and respected. Hotmail was such an explosive concept, Sabeer didn’t want a less-than-ethical VC to reject him, then turn around and copy it. In order to keep the Hotmail idea under wraps, he and Jack Smith even put the JavaSoft name on the front door of their first tiny office in Fremont, California.

Key takeaways: Secretive, Smart and Paranoid.

2. Inspite of earlier rejections, Negotiated with DFJ for double the initial investment offer

One might have presumed that since Sabeer had been rejected by 20 previous VCs and was virtually a nobody, he was grateful to accept Draper Fisher Jurvetson’s $300K on their terms. “He’s the most interesting negotiator I’ve ever met,” Jurvetson says. Tim Draper made the perfectly reasonable offer of retaining 30 percent ownership on a $1 million valuation. Sabeer held out for double that valuation - their cut, 15 percent. The negotiations got nowhere, so Sabeer shrugged and stood up and walked out the door. His only other available option was a $100,000 family-and-friends round that Jack Smith had arranged as a backup - not nearly enough money. “If we’d gone that route, Hotmail wouldn’t exist today,” says Jack.

Draper and Jurvetson relented; they called back two days later to accept their 15 percent. And Sabeer and Jack stretched that initial $300,000 all the way to launching the service before needing a second round.

Key takeaways: Confidence and Self-Worth.

3. Negotiated with Microsoft every week for months and went from initial offer from US $40 million to actual sale price of US $400 million

When Microsoft came bidding in the fall of 1997, they came as a small army. Six at a time, they flew down from Redmond and sat in Hotmail’s small conference room across the table from Sabeer. They offered a figure, something that would have put tens of millions of dollars in Sabeer’s pocket. Sabeer rejected it, and they stormed out. A week later they were back, and every other week thereafter for two months. hey flew him up to Redmond to meet Gates and have a little get-friendly conversation. At that point, it’s easy to see it all as funny money - when you’ve got a week to think about it, it’s hard to really see the difference between 50 million and 60 million. Are you really going to risk losing the deal for another 10 million?

Sabeer went back to Microsoft and asked for $700 million. “You’re crazy,” the negotiators shouted, followed by a few expletives. “You’re out of your mind! You’ve blown it!” But Sabeer knew those were only tactical outbursts.

But negotiating alone allowed Sabeer to present a unified front; it prevented Microsoft from taking Jack Smith to dinner and saying, “Jack, you’ve got a wife and a kid - c’mon, they’ll be set for life.” But Sabeer wasn’t psychologically alone - his backers and colleagues kept the faith.

Key takeaways: Patience, Courage and Partners

4. Neither he or his partner had knowledge or experience in the field they were starting, they hired the experience.

Sabeer believes he’s damn lucky to live in this place and time. “Only in Silicon Valley could two 27-year-old guys get $300,000 from men they had just met. Two 27-year-old guys who had no experience with consumer products, who had never started a company, who had never managed anybody, who had no experience even in software - Jack and I were hardware engineers. All we had was the idea. We didn’t have a prototype or even a dummied graphical interface. I just sketched on his whiteboard.”

The first 12 Hotmail employees signed on entirely for stock, forgoing salary - not very common in the Valley, where the unemployment rate is nil.

Key takeaways: Business and Personal skills over technical and Location