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Entrepreneur, July, 2000 by Cynthia Harrington

DON'T GET E-SCREWED

What's it like on the e-side of town? BizRate.com surveys e-shoppers and makes the data available to the marketplace. It also signs up vendors to sell on the site. Founder Farhad Mohit, 30, describes the company with evangelistic zeal: "We ensure democracy in e-commerce. Shoppers can access our information so they can make decisions on factors in addition to price."

Mohit knew he had a big idea with BizRate.com and he'd been working on it for two years when he looked for financing. "The scary part in bringing in venture capitalists is that you've got people in your company you don't even know. And you don't own your company anymore. Your stock vests over time. If they fire you, they get your stock, too. At first I couldn't believe that was legal. But we were one month ahead of bankruptcy so we took the deal."

Mohit had been on track for a lifetime of academia. After five years at University of California, Los Angeles and a job at Andersen Consulting, he was off to get an MBA at University of Pennsylvania's Wharton School in Philadelphia. "I'd applied to law school, then I thought a Ph.D., and then teach," Mohit says. "Then the Web hit me. I type in a few keys, and all the knowledge of the world is available to me. This is really incredible."

After graduation in 1996, Mohit and two friends (Dave Schaller and Henri Asseily) spent the summer developing a business plan that bad been a class project at Wharton. Setting up in Schaller's apartment, they designed infrastructure, signed up vendors and began collecting shopper data. As the summer drew to a close, decisions had to be made. Asseily's family was pressuring him to take his place in the family business, and Schaller indicated he wanted to return to his job at Boston Consulting Group. "If you've got other options, at some point it becomes irrational not to take them," Mohit says. "I hadn't interviewed anywhere, but if I had, perhaps I would have had an offer to manage a Caterpillar plant in the middle of Idaho, and I would have had to take it."

NO OTHER OPTIONS

Seeing his team disintegrating, Mobit took action. He persuaded David Reibstein, a Wharton professor, to get involved. "With Reibstein on our board, we had validity," Mohit says. "With his investment in the company, we were worth $1 million on paper."

Using the newfound credibility and company valuation, Mohit raised $220,000 in seed capital from friends and family that would last until March 1997. Only Asseily and Mohit stayed on, relocating the company to Mohit's parents' house in Los Angeles. Mohit describes the move: "Here I was, 27 years old, moving back into my parents' house, with $80,000 in school debts. I thought the world had come to an end."

By mid-1997, he had several VC firms vying for the opportunity to fund his company. He settled on two: Mission Ventures and Media Technology Ventures for a total of $4.5 million.

"Suddenly, it became serious," Mohit says. "I had real pressure, because with the money, I have to make something happen. Now I've got guys in suits asking for budgets for putting the capital to work."