“Alright, gentlemen.
I think it’s time to get down to specifics.” John Leighton said once they had all settled in.
“Mr.
John, David and I genuinely did not expect the first person to approach us to be someone like you.
We truly didn’t.” Jerry Yang paused, then reached for a document and slid it across to John Leighton.
“Take a look at our business plan.
Once you’ve read through it, we can discuss everything in detail.”
In truth, John Leighton wanted to tell them right then and there that none of this was necessary, that he only had five hundred thousand dollars and they should just give him whatever shares seemed fair.
But he held his tongue, took the document, and listened as Jerry Yang and David Filo walked him through it.
Their presentation was heavy on enthusiasm and impressively light on specifics.
They covered website data and traffic figures with confidence, but when it came to how the directory would actually make money, things became noticeably vague.
That was understandable.
The internet was still new territory for almost everyone, and most people building in that space were still feeling their way forward.
“I believe everything you’ve said about the website data.
But there is one thing that matters more than any of it right now, and I think both of you already know what that is.
How do you turn this directory into a profitable business?
That is the central question.
Without a clear profit model, a web directory, no matter how impressive, won’t survive.
Please forgive my directness.”
“You’re right, Mr.
John.
That has become the defining headache for everyone working in this space.
The internet is growing fast.
We know the business potential is enormous.
We just haven’t found a clear path to monetising it.”
“Then let me tell you why I’m actually here.
I’ve come with two things.
First, funding.
Initial development capital.
It won’t be a large sum, but it will be enough to start.
Second, a clear direction for where your directory should go and a profit model to get it there.”
Jerry Yang and David Filo both stood up at the same moment.
“What?”
“Nothing I’m offering comes for free, of course.”
“If there is truly a workable profit model on the table, then we welcome Mr.
John’s involvement without reservation.” Jerry Yang spoke for both of them.
Standing off to the side, Zach nearly lost his balance.
The two of them had been together through all of this, and Zach knew John Leighton’s situation as well as anyone.
If this fifteen year old could produce a genuine internet profit model after browsing a web directory for a few minutes, then his instincts for business were something else entirely.
This problem had stumped the entire industry.
“Let’s set the profit model aside for a moment and come back to it.
First, let’s talk equity.
To be straightforward with you, my available funds are not large.
I can put in five hundred thousand dollars as initial capital.
On top of that, I’m contributing the development direction and profit model as my equity stake.
I understand that business is business.
I don’t have a background in computer or network technology, so I’ll ask directly.
What kind of equity does that get me?”
“We’ll be equally direct.
We’ve already approached several financial firms.
Some haven’t responded.
Others turned us down outright.
As for shares, David and I have discussed it.
We’ve valued the directory at five million dollars.
Based on your capital alone, that gives you ten percent.
As for your creative contribution, that’s harder to calculate.
But if you can present a clear, workable development plan and profit model, we’re prepared to offer another ten percent on top.”
John Leighton almost stood up and agreed on the spot.
It was better than he had expected.
What he didn’t know, and had no way of knowing, was that when Sequoia Capital eventually came in, their one million dollar investment would secure them twenty five percent, implying a valuation of just four million dollars, lower than what Jerry and David had just quoted him.
He wasn’t an expert in venture capital.
He was an ordinary person who happened to know the broad outline of history, not the fine details.
All he knew was that he was investing in Yahoo, and that was enough.
Even if his stake got diluted down the road, he was taking a genuine step toward becoming a billionaire.
That said, no one turns down more, so he was still going to push.
“Let me be clear about something.
In the early stage, what your directory needs most is not a large injection of capital.
It needs a clear direction.
With a solid profit model in place, when you go back to the financial markets, the directory won’t just grow.
It will multiply.
That means my ideas are arguably worth more than my money.
So I’ll lay everything out for both of you right now, and if you can confirm the ideas are sound and workable, I’d like an additional five percentage points on top of what you’ve offered.”
The two of them exchanged a brief look, then nodded.
Five percentage points was a reasonable price for something that had stumped the entire industry.
Besides, there was still an idealism to both of them that came from being students who hadn’t quite left campus yet.
They were willing to trust.
John Leighton laid it out.
He explained the general shape of what portal websites would look like, introduced the concept of the web portal itself, and walked them through the content, traffic, and advertising model.
Internet advertising, broadly speaking, had two major paths.
The first was the content, traffic, and advertising model.
The second was the search engine.
Yahoo would eventually build a search function, but it was a directory with internal search, manually curated, and therefore not a true search engine in the deeper sense.
Without the portal concept framing it, the directory had no clear route to sustained revenue, though it picked up occasional small advertising income here and there.
The portal concept was something Yahoo in his previous life had introduced in 1996, when they also put forward the idea of online media as a distinct category separate from traditional print and broadcast.
John Leighton pulled out a piece of paper and sketched a rough diagram, making the general model as clear as he could.
For two people who lived and breathed this technology, what John Leighton had just described was staggering.
It pointed directly at a development path they hadn’t seen and a diverse, scalable approach to advertising revenue that actually made sense.
The two of them fell into an intense discussion with each other, completely absorbed, talking over each other with growing excitement, forgetting entirely that John Leighton was still in the room.
“Ahem.
I think you both have a reasonable grasp of the concept by now.
What’s your verdict?”
“You’re a genius!” David Filo said.
“This is made for our directory.
It’s incredible.
Honestly, five percentage points feels like too little,” Jerry Yang said, giving a genuine thumbs up.
“Well, if it’s too little, I certainly don’t mind taking more.”
Jerry Yang choked.
The room laughed.
“Alright then.
I’ll have Zach start drafting the equity investment contract now.
Have the three of you decided on a share structure for the new company?”
Jerry Yang and David Filo talked it through openly in front of John Leighton and settled on a split of forty percent for Jerry Yang, thirty five percent for David Filo, and twenty five percent for John Leighton.
The contract was signed.
At the same time, John Leighton asked Zach to begin the company registration process and pressed Jerry and David to start looking for an office and move out of the campus as quickly as possible.
He allowed himself a quiet moment of satisfaction.
Co-founder of Yahoo.
In this life.
Strictly speaking, the company had not yet been officially established.
Once it was, he would be one of the founding shareholders.
That made him an angel investor at minimum, and a co-founder in every meaningful sense.
What he hadn’t anticipated was that Jerry Yang and David Filo then raised the idea of dropping out of Stanford to focus on the company full time, just as they had in his previous life.
John Leighton said nothing to stop them.
Once you succeed, every decision you made along the way looks like genius.
History, after all, is written by those who win.