Sramana: What did you do after you graduated from Princeton?
Raj De Datta: I was going to go to Bell Labs until by chance I met a guest speaker from Wall Street. I did not know anything about Wall Street, and I spoke with him after his talk because it was intriguing. He offered me a job on Wall Street, so I decided to become an investment banker without knowing anything about finance. I spent two years as an investment banker and I did a bunch of M&A work. I was an analyst and worked entirely too hard. It was a good grounding for a 23-year-old.
Sramana: What was the thought process of going from investment banking to startups?
Raj De Datta: I felt as though the research I had done before was looking at a super-micro problem. I felt as though doing research was looking at an elephant through a toilet paper roll. Investment banking was like looking at a herd of elephants and not knowing the difference between two elephants. I was one of the few people in investment banking who enjoyed the pitches more than the deals. That suggested I was probably in the wrong profession.
Sramana: What was your first company after investment banking?
Raj De Datta: In 1998 I went to FirstMark Communications, which was an Internet service provider. Around that time there was an explosion of broadband in the U.S. and a bunch of companies were being built. There was a telecom bubble built in tangent with the Internet bubble. Huge amounts of capital were going into the ground. Companies were being valued on multiples of gross PP&E. These were insane times.
We came upon an opportunity to build a similar company in Europe by licensing wireless spectrum. I had never been to Europe, but I moved there from New York. There were two co-founders who were more than 20 years older than I, and had both made a lot of money. One was the chairman of the investment bank that I worked at, and the other made a lot of money in the paging business. The original idea was to start a fund, but when we looked at the opportunity we decided to just build a company. The two of them lived in New York, had families there, and could not move, so I became the guy who moved. They put in the initial capital of $5 million between the two of them, which is how we started the business.
Sramana: What was the nature of the business?
Raj De Datta: We built a broadband service provider in Europe. It was a fiber optic network that connected 100 cities in Europe. It had DSL to provide small businesses with access to the Internet, and it had a wireless service that enabled small businesses to get online wirelessly. We rolled that out across 10 countries in Europe. It was a telecom business more than an IT business. We sold bandwidth, access, and voice.
With the insanity of that time, we raised $600 million of equity and $400 million of debt from Goldman Sachs and Morgan Stanley. That was my first real exposure to fundraising. We built the company to 600 people and $80 million in run rate revenue. It was a crazy, interesting journey. There was a lot of ‘rights of way’ to deal with. I was in government offices all the time, from country to country. I designed the original network and did a lot of the legal work. I did business development, and I ran product for a while. I had every job in the company except CEO.
The story of that company is a reflection of the times. It started in early 1998, and by 2000 the company was valued at $1.5 billion. The private equity money came in with the idea that the company would go public. An S-1 was filed with NASDAQ and the SEC. Of course the markets crashed. Fortunately, we had a lot of capital and a business that was not burning a lot of new capital other than capital expenditures that were able to be pulled back. We had a huge cash balance, but the world was exploding. All these private equity investors decided they needed to recover any money they could for their portfolios independent of what the right answer was for each individual business. They forced the company to sell at a point when it was not the opportune moment. In 2001 the company was sold to PSINet and investors got back a reasonable amount of their portfolio, but nobody made any money.