Shannon Henry (The Post)

• Butterfly.net • Ultraprise • The Download • The Download Live Transcripts • Tech Thursday • Washtech.com • Recent stories by Shannon Henry • E-mail Shannon Henry • Talk: Business & Technology message boards • Live Online Transcripts

Shannon Henry's The Download Live
Discussion with Butterfly.net CEO David Levine

Thursday, February 1, 2001; 1 p.m. EST

David Levine got his feet wet in the technology business as founder of Ultraprise, an online secondary mortgage market. Levine is now preparing to launch his next venture, Butterfly.net, a company that is building online gaming networks.

David Levine

Levine is one of two executives planning new start-ups who will be profiled this week in Henry's column -- "The Download." He will join Shannon Henry on Thursday to discuss what it's like to start a second company in this tougher market.

Levine joins "The Download" columnist Shannon Henry on Thursday, February 1, at 1 p.m. EST for a one-hour discussion.

Submit your questions and comments before or during the discussion.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

Shannon Henry: Hello! We have David right here in the Post newsroom today. Dave, could you start out by telling us what Butterfly.net is? When did you come up with the idea?

David Levine: The main idea is to create a massively-multiplayer (thousands of simultaneous players) gaming network, where you can play from any device. Cell phone, PC, game console, ATM, car, lawn mower.

The idea has been brewing for quite a while. In the early 90s I spent a lot of time on the MOO (Multi-user Object Oriented) environment in Xerox PARC, and saw how people were building software for games within the games environment, and over the last few years I learned how to build companies, so now I'm putting the two ideas together and building a game infrastructure company.

Shannon Henry: We hear so many gloom and doom stories these days about new start-ups. How has the market change affected your plans?

David Levine: The down market has really helped with my plans. It became clear that nothing was going to happen very fast, from a funding and customer adoption perspective, so I picked an area that was very technologically challenging and where the real market window/opportunity was three to five years out. So we're going slow, and by the time we're really popular, it will be a very different market.

Alexandria, VA: How do you avoid giving up too much control when you sign a VC deal?

David Levine: Control is really something you earn. Before you get VC funding, you have control, but nothing really to have control over. Once you have a company and have investors, you have to view them as a constituency and keep them happy, just like employees and customer. Control is an illusion and just realize you will have very little.

You become good at arguing your case.

Washington DC: How did your days as a punk-rocker affect your actions as a busiessman?

David Levine: Interestingly enough, punk rockers are businessmen. I learned a lot from Ian McKaye & Jeff Nelson who started Dischord Records and Don Zientara of Inner Ear Studios and Jenny Toomey of Simple Machines. They build great businesses around the punk rock industry. They really taught me everything I know about business.

Herndon, VA: For a person who does not have many contacts with Venture Capitalists, what's the best way to develop these contacts?

David Levine: Find a great lawyer. If you get the right attorney, they won't charge you until you get a VC deal, which means that they actually believe in you and believe you can be funded. They'll hand your business plan to the right person at the right time. Ned Martin at PiperRudnick handed Steve Walker our business plan on the plane home from his sale of TIS to Network Associates. It was the right time for him to be thinking about putting his money to work.

Washington DC: Where can I obtain a copy of "Storyknife"?

David Levine: I did a search and found a bunch of copies at a warehouse in Ithaca, NY, but it was only cassette & vinyl. I registered SenatorFlux.com and as soon as I have a moment, I'll put all the tracks up in MP3.

The band broke up right when it was released, so Emergo/Roadrunner barely distributed it. I still listen sometimes and I think it will stand the test of time as a document.

Shannon Henry: We're getting some music-related questions here...So I should explain that David was the lead singer of post-punk band Senator Flux before he dived into tech. Dave, do you still sing?

David Levine: No. The only way I was able to sing was that I wrote the songs. Otherwise nobody would ever have let me. Jeff Turner, Tim Goldsmith & Charles Bennington, who were all in the band, had great voices and they buried mine with soaring background harmonies. When I'm on my own, people don't let me sing.

Shannon Henry: Lawn mower! Will people really want to play games from so many different places? Can you be too connected whether it's games, cell phones, pagers, etc.?

David Levine: I think of computers as having three purposes: work, warfare and play. If all these things are going to have processors and be connected to the network, I'd prefer people were making up new games and playing. It beats the alternatives.

In the book Songlines, Bruce Chatwin tells of the Australian Aborigines on their Walkabout running into the guys from AT&T laying a transcontinental cable. They asked what the cable was for, and the telecom guys said, so people in Perth can talk to people in Sydney. And the Aborigine said, "we do that every night."

So... people are already connected to each other, they just don't know how to use their connections very well. That's what games are for.

Washington DC: More specifically, about the punk rock question, how did it affect your ethics?

David Levine: I think it definitely honed them. I believed in the punk ethic as I understood it, but I also new plenty of scenesters who were violent, abusive jerks. There are good and bad people in every movement and industry, so punk rock taught me not to believe the marketing slogans, and actually focus on the people.

I spend a lot of time in Shepherdstown helping out with the community in a way that Positive Force did in DC.

Everyone thinks they're ethical, of course, but the DC Scene gave me some real tools that I've used against blatantly unethical people.

Shannon Henry: Tell us more about what you learned at Ultraprise. What will you do differently this time around?

David Levine: The main thing I learned is that you cannot defy physics. Money does not compress time or space. It takes a long time and a lot of patience to get anything done, and putting unreasonable pressure on yourself or other people to accomplish great feats defeats them in the long run.

I know we're going to have to go through a specific series of steps: building the software, raising capital, launching, building alliances... and that the whole time the people I'm working with have to be healthy & happy.

We had a great time at HuskyLabs and Ultraprise, and I tried to create an evironment that was very fun, positive and conducive to great work. When pressure started building to make everything go faster, we made mistakes and John Bourne is doing a great job as the new CEO correcting those mistakes.

Falls Church: When are we going to see more on the butterfly.net site? I just went but didn't see much there.

David Levine: We've been focused on the product, rather than marketing, and Web sites are really just for marketing. Over the spring and summer we'll be writing whitepapers and explaining things a bit better, but toward the end of the year, you'll see real tools (if you develop games) and test our games by downloading from the site.

We just didn't want to spend a lot of time making it sound like we had a lot before we actually do.

Alexandria, VA: Do you foresee a gambling component to your game offerings?

David Levine: Interesting question. Today, people are trading Ultima Online Gold on eBay for around $50.00 (US currency) for every million Ultima gold coins. So people are already taking these games very seriously and seeing them as real. We're planning for a way to convert game elements to "real money" (what a concept!) so that people could use money in games. Sort of like converting chips or tokens into dollars when you want to cash out.

Honestly, I think roulette and black jack online are very boring. The fun of gambling is the click of the wheel and all the people crowding around, so I don't see having traditional gambling games online for very long.

Washington DC: What, specifically, do you do in Shephardstown that is similar to Positive Force? And do you coordinate with Mark Anderson, or anyone else at Positive Force?

David Levine: I haven't talked to those guys in quite some time. I don't think you really need to coordinate. I'm working on building a new childrens wing for the local library, we have a "day of caring" where we fix playground equipment, fix the doors and gutters and paint the houses of shut-ins, there's an excellent group called Good Shepherd Interfaith Volunteer Care Givers that we contribute money to.

One thing we did recently that I thought was very important was hire a naturalist to create education programs at the Yankauer Nature Preserve. I think educating people about nature and the dangers of sprawl is very important.

The issues out where we are are different than the issues in DC. I think it's important, as an entrepreneur, not to just give money to bloated charities with high overhead. Monica & I think very long and hard about what our community needs and put as much money and as much time as we can into those programs.

I think people should look at their own communities, and save their own forests, before they try to solve problems in other countries.

Shannon Henry: What kinds of games would particularly be good for Butterfly.net? What makes some games become wildly popular and others disappear? I don't know a whole lot about the gaming industry, but are there important trade shows and magazines that could make or break a game?

David Levine: If you are featured on the cover of Wired, you're doomed. Besides that, there really aren't any magazines that can make or break you. There's no Rolling Stone or Spin.

id software showed the way games should be marketed. They put the first levels of their games up on their own BBS (before the Internet was widespread) and posted them on compuserve & AOL & genie. Everyone liked them and then paid to download more. After they were popular, they put them in retail stores.

Massively multiplayer games are somewhat new and different, in that people that are playing bring new people in. They spread "virally" to use the 90's term.

Arlignton, VA: Can you give some tips for raising seed capital for start-up in this market, Thanks.

David Levine: The only tips that I can think of are:

1. Connections. Send your business plan to someone who will understand your particular plan. If it's financial services, someone who knows someone high up in Citibank. If it's music, someone who knows someone related to Geffen. If it's optical networking, someone who has some understanding of that "space." Get their feedback, and hone your plan based on their response.

2. Listen very carefully to the feedback. Jim Condon marked up 4 business plans of mine before he felt they were ready to be shown to a VC, then he handed them to people who were looking for deals and were ready to invest. I met Jim through Lou Ann Scanlon at Outbounder Inc. (formerly Uucom) because we had worked on some projects together. So it's not just connections, you have to actually listen to the people you meet.

3. Figure out a way to bootstrap. The best way to get money is to not need it.

4. Send it to Steve Walker & Associates (http://www.stevewalker.com/). You will get a response no matter what, even if it's not what you want to hear.

dc: what platform/s will you be developing on.

David Levine: We're launching on the PC (windows with pretty much any 3D graphics card) and the PalmOS (Color Visor as the target platform).

We're also talking to some interesting companies that are coming out with new hardware over the next few months. The current form factor of the Palm & Cell Phone are terrible for games, so we're pretty excited by some of the things that are being manufactured (think multimedia, real-time blackberry).

It will be a while before people plug their game consoles into a home network connected to a broadband Internet, so we're not spending a whole lot of time on that now, but it's in the back of our minds.

On the server side, it's Oracle on Sun, with an array of application servers on Linux.

Washington DC: What's wrong with being on the cover of Wired?

David Levine: Rocket Science tanked. Romero left id not long after they were featured. A pattern is emerging...

Annapolis MD: Can you explain a bit what the MOO environment was? Is it still out there in any form?

David Levine: Yes, it is still out there. You can get there through telnet://lambda.moo.mud.org 8888 (port #). There are some good MOO/MUD clients that work better than telnet (I use tinyfugue on solaris).

It's basically a text-based virtual reality environment. My friend Sick (Mike Reece) build a "player class" (sick's sick player class) that had a whole lot of capabilities, so I was able to "change the parentage" of my character to his so as to take on his features. I built a motorcyle based on someone else's generic vehicle... it's pretty slick.

Frederick, Md.: Do you think Internet games are becoming too much the same? (i.e. Fantasy, futuristic) And is this the same problem Hollywood has with making the same movie to satisfy the same audience? What do you plan to differently?

David Levine: They are absolutely too much of the same old same old, because the current game industry is modeled on Hollywood. Games get greenlighted by publishers, millions of dollars go into development, then they have to have hits. It's safer to be the fourth third-person shooter than to be the first (fill in the blank with new idea). If you can't say "it's like Quake but with clowns" nobody will fund your idea.

There is an independent games scene, just like indie movies, but they don't get any distribution (just like indie movies).

The core of our idea is to change all that by making it very easy for people to produce and distribute new games, and release them as serials, so that if people like the first part, which only took a few months to build, money starts rolling in, you can quit your day job, hire your friends and make a career of it.

Shannon Henry: Getting venture capital and going public have been the holy grails of tech companies. Having done one and having thought about the other, can you bust those myths? What kinds of companies shouldn't raise VC? What kinds of companies shouldn't be public?

David Levine: When you raise venture capital, you know many of your decisions will be driven by the limited partners in those VC funds looking for a serious return in a couple of years. If you don't want the same thing, then you shouldn't take the money.

The main thing I learned is that it's the changes that take place in driving toward the "liquidity event" (IPO or sale of the company, which is what the VCs are after) are not necessarily bad changes. You need to get down to "fighting weight" (lean and mean) operationally. You need to plan ahead, so that you have enough capital to do what you need to do. And you can't do anything extraneous.

So if you're serious about building a company, there is really no downside to taking venture capital. IF you are serious about being a business man and your VC is serious about building your business. If they are feeling pressure to show a return, they can really mess up your company trying to get out. So it's a risk, but you can always start again. That's what's great about the whole thing. You definitely can't get emotionally attached to the company, just to the people. And the people can follow you to a new company.

Unfortunately, there is really no other effective way to build a business in the hypercapitalist world we live in except to raise VC and ultimately to go public (or to sell your company so that the VC can convert the stock to cash).

Lifestyle companies, where you just want a nice office and a car and show up from 9 to 5, should not take VC money. Very few companies should be public. Only ones that have really proven that they can consistently earn more money each quarter than the last.

Arlington, VA: Are there non-game applications for the technology you're building?

David Levine: Yes, there are, but we've chosen to ignore them. We started some discussions with military labs, and others, but decided it would be distracting. We need to focus on one market and succeed there. If we're successful, someone else can commercialize our technology in other sectors.

The Iraqis (rumor has it) bought a bunch of PlayStation2's to guide missiles. I'd rather not be involved in that stuff. Watching the Gulf War on TV was too scary. I'd rather we had hit huge electronic beach balls to each other over the Atlantic Ocean.

Shepherdstown, WV: Hey Dave its Amy Macom, I just saw that you were in the city today as well and thought I would say hi from one fellow Shepherdstown resident to another...See you at the Dog...

David Levine: Hi Amy. :)

This is kind of embarassing, don't you think?

Shannon Henry: Your comment about "bloated charities" is interesting. It may be more specifically critical, but it's similar to what a lot of tech executives are saying these days. Do you think of what you do as venture philanthropy?

David Levine: I do in that I'm trying to think long-term about what I contribute to, and thinking through the implications. Fortunately, I don't have enough money to really worry about being a serious philanthropist. I'm still in the "trying to contribute to the community because I have three kids and I want them to be happy" category.

Shannon Henry: What attributes does it take to be a start-up CEO? And what are your thoughts about all these founding CEOs coming back to their companies these days---Naveen Jain at Infospace, Ted Waitt at Gateway, and locally, Doug Humphrey at Cidera.

David Levine: I think this is a very interesting trend, and I was wondering if anyone was going to pick up on it. Jobs was clearly the start of all this at Apple.

I think it goes to show that often shareholders or a board can be too hasty in deciding that a founder can't scale with the company, and that a serious executive needs to be brought in.

Too many people were following the Jim Clark model of start up and get out. If Jim had never relinquished control at Silicon Graphics, they could have owned the browser, owned gaming, owned B2B... they could have been bigger than Microsoft. That must hurt for Jim a bit. Maybe we wouldn't have so many serial entrepreneurs, and fewer, but more successful, companies.

Arlington, VA: What lessons have the VCs learned from the dot-com crash? Or, more importantly, what did you learn from the crash and how did that affect your pitch to the VCs?

David Levine: This will be the last question, as I have to run, but there are many VCs with their tail between their legs, which is where it should be (if not in their mouths.)

For a while it was all about chasing the deal, not building the company. Everyone was panting after the next hit.

The reality of the situation is that many of the companies that crashed would not have crashed if the VCs had taken the time with the founders to get it right.

Steve Walker & Gina Dubbe and their troops came out all the time to help me fix things at Ultraprise. They did very small investments (our seed round was only $100K at Ultraprise) and nurtured them, putting in more money as needed. Many others just put in $millions at once, then assumed everything would be fine and ran to the next deal.

I think VCs will do less, smaller investments and then really help the entrepreneurs. At least that's my hope.

Shannon Henry: We're out of time for today. This was great. Thanks, David, for the enlightening discussion, from punk to tech. And thanks also for the wonderful questions...!

Automatically Update Page    |    Get New Responses    |    Submit Question