October 20, 2020

1995-03-02 – Santa Cruz Sentinel

1995 03 02 Santa_Cruz_Sentinel_Thu__Mar_2__1995_

A meteoric rise and fall for SV firm

RoundBook’s story began in March 1993.
Formed by Greg Smith and Francis M. Juli-
ano, former Sony Corp. executives who had
an unusually strong track record in the
young (ZD-ROM business, the Scotts Valley
eompany showed a knack for deal making. It
won rights to reproduce art slides from Rus-
sia‘s most prestigious museums. beating out
a company owned by Microsoft‘s William
Gates.

“Tommy” was RoundBook's ticket to
fame. The company outmaneuvered compet-
itors to get the deal from composer Pete
Townshend and Kardana Productions Inc.. a
Manhattan firm that co-produced a Broad-
way musical of the Who's rock opera. The
(Ili-ROM version was expected to be shipped
last fall, blending concert footage. clips from
a “Tommy" film and 25 years of Who pho-
tos, documents and memorabilia. Town-
shend even put in $30,000 of his own money
for a 3 percent stake in RoundBook.

The company worked up impressive pro-
totypes for "Tommy" and the Russian art
disk. But cash problems loomed. A distribu-
tion deal with Compton‘s NewMedia. once
valued at $18 million. fell apart; RoundBook
received only $275,000 in advance payments.
By last summer, RoundBook was close to
burning through the $1 million invested by
friends and family members. and needed
much more to complete the two key titles.

RoundBook executives auditioned for
more than 30 venture-capital firms. But the
music business didn‘t fit the venture firms‘
formulas for evaluating start-ups. just as it
would have been difficult to measure wheth-
er “I Love Lucy" would be a hit. Round-
Book‘s Mark Lediard says.

“Let‘s say they do the best job in the
world with ‘Tommy,"‘ says Larry Orr, a gen-
eral partner in Trinity Ventures. a San
Mateo. firm that passed on RoundBook.
“There is a fear that that is a onetime suc-
cess.

Venture capitalists preached that Round-
Book should tighten its focus to music and
art. Other potential investors later said the
opposite. arguing that RoundBook needed
more titles to build sales and brand identity.
Meanwhile. the company was coming close
to going out of business.

Providing a temporary lifeline, a venture
firm lent the company $455,000 in Septem-
ber. Technology Partners. based in Belve-
dere. Calif. installed a more seasoned chief
executive officer to head RoundBook and
helped search for other venture capitalists.

”I‘m used to fast ‘noes' and slow ‘yeses.“'
says Bartley Rhodes. the former publishing
executive who became chief executive. “This
was a case where we got a lot of slow noes.“

By December, with Kardana talking about
withdrawing “Tommy." RoundBook flew ex-
ecutives to Redmond, Wash, telling Micro-
soft that it needed $2 million in about two
weeks.

”We were very interested.” says Frank
Schott. general manager of business devel-
opment in Microsoft's consumer division.
”These guys were very sharp people."

But two weeks wasn't enough time. Schott
says. He did offer to distribute RoundBook's
Russian art disk; Lediard values that otTer at
$200,000. a fraction of what Gates's company
once offered for the same art rights. Round-
Book declined.

On Dec. 22, potential help arrived from an
unlikely source. the Economic Development
Administration of Puerto Rico.

The commonwealth wanted to invest in
high-tech companies that would create jobs
there. In January, RoundBook's Smith and
Rhodes toured the island, talking with gov-
ernment economists. bankers and university
professors. The company was willing to set
up some Puerto Rican operations. including
telephone customer support.

On Feb. 2, Puerto Rican banks and ven-
ture capitalists pledged $3 million. The

transaction. which was based on Technology
Partners‘ earlier pledge of $1.5 million, was
contingent upon RoundBook finding an addi-
tional $500,000 from US. investors.

Only one hurdle remained. Kardana and
the Who's Townshend were impatient with
RoundBook's missed deadlines and seeming-
ly endless search for money. RoundBook
made an updated pitch to continue the part-
nership. based on closing the Puerto Rican
deal on March 9.

John Hart. Kardana's president. believed
that date was too late to hit the 1995 Christ-
mas season with the disk. At 5:38 pm. on
Feb. 3, he sent the fatal fax: Roundbook had
lost “Tommy."

“I‘m sorry for RoundBook." Hart says.
“But we gave them every shot. and time well
beyond what we certainly would have expec-
ted." Three days later. Smith asked his law-
yer to begin preparing Chapter 7 bankruptcy
proceedings.

RoundBook made plenty of mistakes.
Smith turned down $2.1 million from a ven-
ture capital firm in 1993. because the per-
share price offered seemed too low. ()ver-
head was high; where start-up founders typi~
cally scrape by on promises of stock to em-
ployees. RoundBook gave $50,000 salaries to
some people who were used to regular pay-
checks at Sony. Smith says. For its ”Tom-
my" gala at the Consumer Electronics Show
in 1994. RoundBook paid $50,000 for a satel-
lite hookup so Townshend wouldn't have to
fly to Las Vegas.

Although “Tommy" was never shipped. a
consumer survey by one accounting firm
found that the well-publieized product was
nevertheless considered one of the best (‘l)-
ROM products by .‘l pereent of those sur-
veyed.

”Maybe this will make a funny book." l.e-
diard says.

[)on (‘lark