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Better Sequoia Capital than Hummer Winblad: That firm was doing terribly, even by the washout standards of post-bust Sand Hill Road. Of the $318 million raised by Hummer for its fourth fund in 1999, $297 million had been invested by the end of 2001. The fund had realized only $5 million in gains and had $58 million left in residual value by then, according to InsiderVC.com publisher Steve Lisson. That jaw-dropping −80 percent return compared with +20 percent for a Sequoia fund, −20 percent for an Accel Partners fund, and −30 percent for a Foundation Capital fund all raised the same year. “Hummer IV is pure toxic waste,” Lisson said.

JOHN FANNING, ON THE OTHER HAND, accomplished a lot of what he had set out to do.

In the fall of 2000, he pitched investors in a bid to raise $50 million for new companies through his incubator, NetCapital, which was supporting the old online games firm and NetMovies, the video start-up. A draft of Fanning’s presentation said that NetCapital was looking for peer-to-peer companies with viral marketing and that Napster showed NetCapital’s “fundamentally value-driven approach.” Napster did so well, the document crowed, because of how Shawn had been cynically marketed by the real powers at the company. “Creating a media-friendly ‘Cinderella’ story around a 19-year-old programmer and propagating a viral marketing strategy targeting early adopters allowed the business to grow very quickly with limited investment,” it said. The presentation said that NetCapital’s team, including founder and chairman John Fanning, CEO Martin Kay, and marketing chief Tom Carmody, were contributing their holdings to the portfolio. Among those holdings were $5.4 million worth of Napster stock, $300,000 worth of stock in AppleSoup (by then named Flycode), and $700,000 worth of stock in ON24.

By early 2001, NetCapital apparently had succeeded in raising $2 million, according to entertainment lawyer Howard Altholtz, who served briefly as a company vice president. Fanning’s old habits still created problems, as Altholtz’s experience showed. Fanning met Altholtz in mid-2000 and offered him a job as vice president for business and legal affairs. When Altholtz mentioned competing offers, he said, Fanning asked him,

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