DOT.COM RISK TAKERS

D Magazine, May 01, 2000 by Habal, Hala

HAVE THE GREAT Internet fortunes already been made? Everyone, it seems, is jumping ship to work for a dot.com-from CEOs and MBAs to bankers and accountants. In the last six months, Dallas has turned into a hotbed of online activityand it's your neighbors and former classmates who are making the move online.

We wanted to know the story behind the mania. Is it the money? The options? The challenge? What do these people know that we don't, and how much of the new economy is passing us by?

We've talked to scores of professionals who have made the Internet switch. Of these we picked five-a top executive, a young entrepreneur, two bankers, and a lawyer-to profile because they epitomize what we discovered. One has made his first fortune and is already itching for his second; one is moving back to Dallas to lead a corporate remake; the others are launching new businesses with their fingers crossed. Here's what's happening in Dallas right now. Are you missing out on the action?

The Entrepreneur

Even a good ol' boy can try to strike it rich online. Scott Sexton was born and raised in Highland Park, went off to Baylor University right after high school, and promptly returned to his hometown after getting an accounting degree in 1992. He was a varsity basketball star in high school and college, but he also knew how to have fun, spending many a weekend at fraternity parties. After all, he didn't have to worry; he'd been groomed for the family business.

Sexton went to work for his dad, who had founded a food ingredient and packaging brokerage named Bakery Associates. After a yearlong stint as a salesman for Bakery Associates in Mexico City and seven more years in Dallas, young Sexton was getting restless. "My dad didn't even have a computer when I started," he says. "He still had his receptionist typing things up for him."

Sexton also saw a lot of inefficiencies in the way suppliers sold their ingredients to food manufacturers. An attempt to duplicateand improvethis system on the Internet would be too expensive a proposition for Bakery Associates, so Sexton began to think about how to set up a separate company.

In 1998, Sexton quit his father's company and called Chris Renner, his childhood friend, college roommate, and fraternity brother. Sexton had eight years of industry experience-not to mention a lifetime of his father's stories-and Renner had been working in the financial technology sector since they had parted ways eight years before. The duo founded one of the first and only online start-ups in the food and beverage manufacturing industry.

"I don't think there was any question that the industry needed to move online," Sexton says. "The transactions were so inefficient. This way, I could continue the family business-but online. My dad was really excited to see that I built off of his business platform."

The first steps were to build a team and secure financing. The team part was easy-the two partners dialed up a few college fraternity buddies. Four members of management and nine employees came from these phone calls-some were even wooed away from top companies such as Microsoft, Arthur Andersen, and Computer Sciences Corp. What brought them? In Sexton's own words: "Stock option opportunities and high salaries."

But all is not e-topia. The new business-to-business Internet company they formed, INC2inc, secured $4 million in its first investment round from local venture capital group Spyglass Equities, but that was only to set up the model and prove its feasibility. To shift into full operation will require more capital. "We're moving right into our second round of funding," Sexton says. "Part of hyper-growth is burning through funding and getting people into place. It's scary, because you have to get enough money to bum in the second round to maintain the rate you're already burning."

At least INC2inc is off to a good start: It went live in March 1999 and just one year later signed H-E-B Food Stores as a client. Through the web site H-E-B can now streamline the ordering of raw materials for its private label food products from 11 facilities in South Texas. For every transaction made on the site, INC2inc gets a 1 percent fee. It may not sound like much, but consider this: Last year, H-E-B bought about $6 billion worth of products to sell. And one percent of a lot of money is a lot of money. If online purchasing proves to be more efficient, many distributors will move to the web. Right now it's all riding on that one word: If.

The Lawyer

The dot.com's office is just past Central Expressway on Commerce Street, right at the mouth of Deep Ellum. "You can't miss it" are the words used to describe its location. I keep driving pas

t the address I have, thinking that the strip of vacant office space with caved-in brick walls and dirty windows couldn't possibly be right. This surely isn't the address of one of the city's hottest and richest online companies. Not in this town. But since I'm already 10 minutes late for the interview, I decide to park and venture into the only suite with lights on.