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It all started with a failed trip to the mall.
In 1998, film-school grad Nick Swinmurn was scouring the Bay Area for a pair of Airwalks, but couldn’t seem to find the right size and style. Swinmurn, who was working at the Internet consumer site Autoweb.com at the time, used the model behind that site for selling shoes online. This idea would eventually become Zappos.com.
Swinmurn said it was a passion for enterprise — not necessarily footwear — that got things started. “I was always trying to start little businesses, so I did a bunch of research and ended up at The WSA Show in 1999.”
Armed with some homemade fliers for Zappos predecessor ShoeSite.com, Swinmurn was denied access to most booths, but executives at Eastland provided some crucial words of encouragement. “They told me, ‘We’re not going to work with you right now, but someone’s eventually got to do this, so you should keep pursuing it.’ I got enough of those kinds of comments that I thought, ‘OK.’”
The young entrepreneur began raising $150,000 in start-up capital from family and friends, but soon realized he would need a major investor. A call to Tony Hsieh, then a venture capitalist, began what would become a very fruitful partnership.
FN: How did you meet Tony Hsieh?
NS: I had already met with five or six venture capitalists [when] my attorney told me about these guys at Venture Frogs who were looking to invest in anything at the time. Tony had sold his company, LinkExchange and started a fund. It was a small fund with no track record going up against established venture capital firms for the biggest deals. But they had ambitious plans. Tony, Alfred Lin [now chairman, CFO and COO] and Millie Chou [now in-house counsel] rented two floors of a building in San Francisco, and they wanted to have this big incubator with about 30 companies in it. But that didn’t pan out because the economy started to go south. So we were pretty much the only company that ever went into the incubator.
FN: How did you convince them to invest in you?
NS: It was the fact that 5 percent of a $40 billion shoe business was already being done through mail order. That was my big statistic. People were already buying shoes without trying them on. So they invested $500,000 — which at the time felt like I had just raised $100 million. The company was a little more stable at that point, so Fred Mossler agreed to leave Nordstrom and come on board as our buyer.
FN: How involved was Venture Frogs in business decisions?
NS: Initially, we were just given money, and if we were going to spend more than $50,000 on something, we had to let them know. In January 2000, they put more money in, and we agreed to move into their office space. Tony was spending all day with us, and I think he realized it was the most fun company to work on and one of the only companies to work on in the office, so he really got behind it. I don’t think Alfred was ever really that high on Zappos in the beginning. But in 2004 and 2005, he started to show interest. He realized that it was getting pretty big and there was a need for a CFO.