Fish Story

Red Herring Editor Tony Perkins is a self-described maverick, a stylish fast-talker with a knack for making friends and influencing people in the high-tech world. Not bad traits for a Silicon Valley entrepreneur, but are they what it takes to publish a "m

"I went through a sort of early midlife crisis," Perkins says. "I had to ask myself if I wanted to be a middleman for the rest of my life, or if I wanted to branch out and start my own company. That crisis ultimately led to the idea for a magazine."

Working in the bastion of free-market capitalism, Perkins quickly abandoned his college flirtation with Democratic politics. It wasn't long before he was raising money for Republican politicians in his spare time. While organizing a fund-raiser for California Rep. Ed Zschau's 1984 re-election campaign, Perkins got to know Rich Karlgaard, an acquaintance whose wife worked at the bank.

"We both discovered that we were not only Republicans, but we both read publications like the National Review and American Spectator," says Karlgaard, who was a technical writer dabbling in desktop publishing at the time. "We were both ideological conservatives."

The pair decided that Silicon Valley needed the equivalent of San Francisco's Commonwealth Club -- a forum where the business, political, and academic communities could discuss vital issues. And make business deals, of course. The Churchill Club was born in 1985. It wasn't long before the Orator, the club's four-page newsletter, became a hot item in Silicon Valley.

"A light bulb went off in Tony's head," Karlgaard says. " 'If this little newsletter is so popular, why not start a magazine?' "

At the time, computer trade magazines were devoted to gushing accounts of the latest software or PC development, and business magazines like Forbes and Business Week treated the emerging Silicon Valley computer companies like an intriguing niche market. The business sections of the local dailies were valued more as kindling in the fireplaces of high-tech players than as viable sources of information.

Perkins and Karlgaard envisioned a magazine "for Silicon Valley about Silicon Valley," with Karlgaard handling the editorial side and Perkins doing the publishing.

"Tony is good at selling things that don't exist, like ideas, abstractions, and visions," Karlgaard says. "And that's what being an entrepreneur is all about."

Perkins hit up the investors. Perkins' childhood pal turned VC, Tim Draper, got in the game early. He became the project's biggest backer, investing the first $30,000 so Tony could quit his job at the bank and devote himself to what would become Upside -- a name that came to Perkins while he was stopped at a traffic light. Other early investors included Roger Smith, the founder of Silicon Valley Bank, who threw a $5,000 bone to his former employee, and Gary Lauder, the grandson of EstŽe Lauder.

The cover story in Upside's inaugural issue in July 1989 had Silicon Valley buzzing. Then-Managing Editor Nancy Rudder, whom Karlgaard describes as a "journalist with a real taste for blood," wrote an exhaustive profile of Kleiner Perkins Caufield & Byers. It wasn't a particularly incendiary piece, but the very fact that someone was covering the Byzantine world of venture capital captured notice.

"It scared the crap out of Kleiner Perkins," Karlgaard says with more than a hint of pride. "For several weeks [they] called us every Monday and threatened to bury us. That just made us more eager to keep going."

Investment bank Hambrecht & Quist was soon called on the carpet in the pages of Upside for its business practices. Another issue blamed the influx of M.B.A.s for Silicon Valley "turning pussy." Stylish caricatures graced Upside covers portraying industry moguls in a less-than-flattering light. Case in point: Oracle CEO and megalomaniacal billionaire Larry Ellison was depicted as Humpty Dumpty.

"By about the third issue, people in Silicon Valley really knew who we were, and everyone started returning our calls for stories," Karlgaard says. "No other magazine was doing what we were doing."

It was Upside's misfortune to launch itself in the midst of a publishing recession. Advertisers, especially financial-service firms that backed high-tech companies, slashed their ad budgets for the next two years. Upside lost nearly $3 million between mid-1989 and 1992, according to Ed Ring, Upside's current chief financial officer.

Perkins, Karlgaard, and Draper were all publishing novices, and their mistakes exacerbated the magazine's early financial woes. By setting the price of Upside stock too high in the early fund-raising stages, the valuation of the company quickly climbed too high. This meant that later investors would be forced to sink a large sum of money into Upside if they wanted to control a significant portion of the company's stock.

"Most of the Upside investors were rich folks who where doing it as a hobby rather than a professional investment," Karlgaard says. "The deal was too rich for venture capitalists or serious investors who weren't interested in the emotion or the fun of it."

Perkins scrambled to raise funds seven days a week, knowing that the magazine was often dangerously close to missing payroll. Money trickled in, but no one was willing to make a big commitment. Meanwhile, every new investor gained diluted the value of Perkins and company.

"It was a complete fund-raising treadmill," Ring explains. "We were burning through $50,000 to $100,000 a month. I'm talking deficits. There was tremendous pressure on Tony to keep the whole thing afloat."

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