Published in The New York Times Magazine
June 9, 2002

On May 20, 1999, Toby Lenk presented himself at the offices of his investment bankers, Goldman, Sachs. There was no "Welcome, Toby!" sign posted at the entrance -- the venerable Wall Street firm does not do things like that -- but this was, unmistakably, his day. His little startup, eToys, was going public.

At a time when Wall Street money was cascading down on barely postpubescent entrepreneurs, Lenk stood out as a grown-up. He was then 37, had been a vice president for strategic planning at Disney and was a Harvard M.B.A. Nothing about his company made you scratch your head and ask, "It's going to do what?" The eToys mission was concise and compelling: Sell high-quality toys over the Internet to parents who find shopping at Toys "R" Us and the other big chain stores unbearable. On the day of the I.P.O., eToys not only had a very cool Web site but also real customers and real revenue.

The Goldman, Sachs trading floor was a sea of white shirts. Young men, and a handful of women, scurried about and shouted into telephones. Lenk had worked ceaselessly for three years -- researching and refining his idea, pitching to private investors, getting the business up and running -- but at this critical moment he had nothing to do. It was as if someone had thrown him a huge party and insisted that he just sit and be served.

Another eToys executive, Frank Han, had the sense of being stared at in the instant before trading opened. "It was like we were folk heroes," Han says. "We were the American dream. People were looking at us like: 'Those are the guys from eToys. Those people are going to be worth hundreds of millions of dollars in a matter of seconds.' "

The opening share price was set at $20. When the first trade moved, cheers erupted as the electronic board above the trading floor posted the price: $79. The stock would rise on that opening day to $85 before closing at $76.56. Not once did Lenk pull out a calculator to figure his new net worth. He didn't need to. "It was easy to do the math," he says. "I had 10.5 million shares in the company. You just add some zeroes and that's what you have."

At $85 a share, Lenk's worth, on paper, was more than $850 million. The market had valued his two-year-old company at more than $10 billion -- two and a half times greater than the bricks-and-mortar giant Toys "R" Us.

Lenk entered into a strange relationship with this windfall. Mostly, he tried to ignore it. Sometimes, he got mad at it. When a banner updating the eToys stock price went up on the company's internal home page, he ordered it taken down. He bristled when employees, all of whom held pre-I.P.O. stock, showed up at work in fancy new cars. Over time, he would come to believe that the stock market bubble ("this craziness, this frothing") had doomed an idea that would have survived a normal market.

The oddest thing of all was how Lenk treated his personal stake. He was not a trust-fund kid. He had grown up in a middle-class Boston suburb, had made good money as an adult but wasn't set for life. Yet he let his holdings evaporate. He didn't sell high; he didn't sell at all. "I never felt comfortable with this whole notion of, 'I'm gonna make my $100 million and the hell with everybody else,' " he says.

Just before eToys filed for bankruptcy in March 2001, its stock plunged to 9 cents a share before being ignominiously delisted by Nasdaq. When the company finally did expire, Lenk -- the "captain of the ship," as he liked to say -- went down with it. At the end, he was still holding 10 million shares.

Some people would consider Toby Lenk a fool. A pious fool, even, overly invested in his own righteousness. A big pile of money falls into your lap. You take some, right? Surely, Lenk could have scooped up a few handfuls of those millions, just enough to be comfortable. "There are times I wish I had," he says. "I have some regrets. If I didn't, I wouldn't be human."

But in the casino stock market of 1999 and 2000, Lenk recognized only two categories of players: greed hogs and builders. Bad people and good people. By their actions, they declared themselves. His black-and-white view allowed for no fence straddling.

"Nobody would have dared tell him, 'You've got to get some of your money out,' " says Lenk's sister, Mindy Whitman. "It wasn't going to happen. We had eToys stock. He didn't want us to sell."

Lenk prevailed upon his senior team to follow his example. By not bailing, they hoped they were helping to save eToys -- signaling confidence to Wall Street. When I ask Frank Han, who was chief operating officer, if he could think of anything he would have done differently at eToys, he says, "I wish I had taken better care of myself." In what way? "Financially."

Lenk's personal financial statements came through the mail slot each quarter, and even as the bottom fell out of the stock, his numbers remained huge. Ten million shares at, say, $6 a share. "It was just money on paper to me," he says. "It wasn't real."

But to others it was. They did the math and connected the money to the man. Lenk's executive assistant built a wall around him. "Like Fort Knox," Lenk says. "Nobody got through to me who I didn't want to get through."

For several years, his friends knew that he did not exist, socially. A lot of that was because he worked all the time, but some of it was wariness. Toby Lenk did not wear his wealth comfortably. "The level of attention you get from people certainly increases, and not in a positive sense," he says. "Nothing changed with people who knew me prior. But with the others, I had to always wonder -- what were they after?"

As we talk, Lenk is sitting in the living room of his home in Santa Monica, Calif., absentmindedly stroking the heads of his two Labradors, Amos and Tucker. He is about 6-foot-3, and lean. His most prominent facial feature is a hawklike nose. Despite being mostly bald, with the hair at his temples graying, he retains a good deal of boyishness, owing to his intensity and enthusiasm. In explaining how he came up with a certain idea, he says to me, "And then -- ding, ding, ding! -- the light bulb went off in my head!"

Lenk's one-story stucco house, which he shares with his fiancee, Lynn Thompson, has three small bedrooms, two baths, no dining room and a galley kitchen. It could be a starter home, except that he has rented it for the past eight years. He owns a laptop computer, a nice bicycle, a pool table and an expensive set of golf clubs that he received as a gift. His one indulgence over the past several years was to buy a membership in an exclusive golf club.

I did not get the impression that Lenk is in any way hurting for money, and he does not claim to be. On the other hand, for someone who just a few years ago was listed by Fortune as one of "America's 40 Richest Under 40," he lives modestly and with a noticeable lack of things. He is actually a little defensive about this. "I'm not some sort of freak who doesn't want to have a house or anything," he tells me. "I could afford one, and I think I'll probably buy one as soon as I figure out what I'm going to do next. I'm just a little late in certain ways. At Disney, it was a very intense environment. And then I had the whirlwind with eToys, so the last decade for me, the years between 30 and 40, have been kind of a blur."

At eToys, Lenk's official title was president, C.E.O. and "uncle of the board," changed to chairman of the board after the I.P.O. When the press came around to interview him, he was usually whacking a Wiffle ball in the company corridors or sitting at his desk with a scuba G.I. Joe or some other groovy toy. His business card included a picture of himself as a 4-year-old.

As is the case with many entrepreneurs, there are two distinct sides to Lenk. One is the buoyant public pitchman, the other an introvert who spends a lot of time alone, dreaming up ideas and then putting them through painstaking research. After leaving Disney and seizing on the idea of selling toys online, he says: "I went out and did what I do. I did a three-month strategy study. I dug up financial reports from all the related companies and industries. I studied Hasbro, studied children's book publishing, children's educational software. I looked at Toys "R" Us. What I'm looking for at this stage is a strategic angle, something that people who are in the market are missing and I can build a powerful business around."

Lenk values the strategic plan -- particularly if it's his own -- far more than money. He couldn't sell his own stock, because, the way he divided up the business world, it would have made him a bad person, a taker rather than a builder. And selling would have indicated he had lost faith in his own idea. So he barely celebrated the volcanic birth of eToys, then had to endure its decline. "The first two years were exhilarating, the last two debilitating," he says. "Things changed fast. But they also changed in slow motion."

Lenk made a six-figure salary at Disney but didn't have the kind of money to finance a company. "I had a modest six-figure sum saved up," he says. "That's it." He started eToys with $900,000 from 35 initial investors.

After surprising initial success in the 1997 holiday season, venture capitalists poured an additional $28 million into the business. Lenk anticipated about $10 million in revenue for the final, all-important holiday quarter of 1998; eToys did $23 million. The following year, final-quarter revenues soared to $107 million. "That was a massive false positive," Lenk says now. But at the time, it seemed to dovetail nicely with the trend in the stock market to hurl money at e-commerce startups, most of which made a lot less sense than eToys. "The venture capitalists had already been swirling," Lenk recalls. "Then the investment banks started calling. And it was like, you know, everybody could sense a money-making opportunity. And then we had the whole press buildup, the David versus Goliath storyline. The Wall Street Journal, CNBC, started talking about upstart eToys taking on Toys "R" Us. I never had any intention of taking on Toys "R" Us."

Lenk, seemingly without personal avarice, is not without ego. "When you get an M.B.A., to be creative you've got to start a business," he says. "When you do that, you're at the top of the food chain in terms of respect." And even higher on the food chain if your business is really big. "It was alluring to think about eToys as a much bigger business. It was the excitement of the hunt, the chase, the competition."

To all the world, Lenk looked like a rich and lucky man. But at the same moment the big money came his way, he lost what he valued most -- control over his creation, the ability to make eToys grow in a sane and orderly fashion. The market, in essence, seized control from the whizbang financial strategist. It put itself in charge.

"It was the whole land-grab mentality," Lenk says. "Grow, grow, grow. Grab market share and worry about the rest later. When you're in that cycle, and less capable people are doing I.P.O.'s, it's like an arms race. If you turn down the gun and put it on the table, all you're doing is letting other people pick it up and shoot you. I made the decisions and I take full responsibility. But there were a lot of amazing forces at work."

Lenk is much too smart not to have sensed trouble right from the start. After the first trade was posted on the day of the I.P.O., he turned to Han and said: "This is bad. We're going to live to regret this."

Whipsawed by a market he had no taste or training for, Lenk did have an undeniable and somewhat unexpected gift. He was very good at running an old-fashioned toy store -- refashioned online with excellent service and, in some virtual sense, warmth. There was no guy at the front of the store in a flannel shirt showing off the electric trains, but Toby Lenk did his best to play the part. "He just loved it," says Lenk's sister, Mindy. "He loved that he had created something that really worked for people."

EToys consistently ranked at or near the top in surveys of the best e-commerce sites. "Toby Lenk's toy shop may be the best-run specialty store on the Web," Fortune magazine wrote. But the I.P.O. had skewed the financials, promoting unnatural growth, and the company built software and warehouse space to handle a much bigger business than it could hope to build. "We had the capacity for $500 million in revenue but came to a stop at $200 million," Lenk says. "That's hard to survive."

Among eToys' distinctions is that it's the rare bankrupt e-commerce company that, in retrospect, still seems like a good idea. And, in fact, eToys still exists in another form. In May 2001 at a bankruptcy auction, K.B. Toys, with more than 1,300 stores, bought eToys' "intellectual assets" -- its name and its software -- for a bargain-basement price. The Web site, briefly darkened, is now up and running as a so-called click-and-brick, an online site attached to a land-based retail empire.

Lenk is now an "entrepreneur in residence" for Highland Capital Partners. He reviews ideas that the firm may want to invest in, and he works on some of his own. On a white board in his home office were notes for two of his projects, labeled Project T and Project V. I saw some reminders and phone numbers and a few jottings that looked like mathematical equations. Lenk told me that stealth is a necessity in entrepreneurism, so he had changed some of the content to disguise what he was up to. He didn't need to go to the trouble. The notes on the white board were clearly the product of an active mind, but beyond that I couldn't divine much of anything.

I wondered if it was difficult for him to commit again. He has a good corporate pedigree; he could be a cog again in a big company rather than a go-for-broke entrepreneur. "Yeah, it is hard, and I might not do it," he answers. "I will have to be really passionate both analytically and emotionally to jump in."

Lenk says he made $982,000 in four years at eToys, including a "stay incentive" near the end intended to keep top management in place and make the company more attractive for sale. That's less than he figures he would have made at Disney or elsewhere in corporate America. For six months after the I.P.O., he and other inside investors were prohibited by the underwriting agreement with Goldman, Sachs from selling. After that, Lenk twice entered into agreements to secure more money for the company that locked him up again.

On two occasions, Lenk did part with small portions of his eToys stake -- he made a gift of about $2 million in stock in November 1999 to Rosie O'Donnell's For All Kids Foundation. Two years later, Goldman, Sachs executed a margin call and sold 319,000 of his shares to repay money he had borrowed to invest in friends' startups that, in most cases, were also sinking.

"Even when we first went public," he says, "I could have said to my investors and the banks: 'I'm taking some money off here. I'll lock up X percent, but I need something for myself because I've been working hard for three years.' I could have done all kinds of stuff. But it was an easy decision, not only for me but for several of my top people. We were making a conscious decision to put our personal well-being on the line in order to build a company for the long term.

"My goal from a wealth perspective has always been very simple. I want to be able to make my own choices -- to do a startup if that's what I want, to go off and work on defending the environment if that's what I want. That means that you need to pile a little money away. But you don't need tens of millions of dollars."

I ask Lenk if he believes he could get his next idea financed. "Absolutely," he says. "From an entrepreneur's perspective, I'm undefeated, because I absolutely hit the ball out of the park in creating this amazing company, that was just like what I envisioned when I sat alone, with Amos and Tucker at my feet, and drew up the business plan.

"And to be honest, and I don't like this fact, early investors made a lot of money. And the scorecard in the entrepreneurship business is: did you make people money? I did do that."

Not, however, with any delight. "It bugs him incredibly that other people made a lot of money," says Frank Han. "There's got to be a certain amount of envy. He should have come out with money. We all should have. Toby's not a martyr. If he were fabulously rich right now, I think he would be O.K. with that."

But it would have to be on his terms. He would have to be firmly planted in the right camp. A steep stock run-up like eToys experienced creates a class of huge winners. Many of Lenk's original investors cashed in -- some immediately after the six-month lockup expired. His sister, Mindy, says she invested less than $100,000 in the company before the I.P.O. and ended up selling "maybe a quarter of the shares. I didn't sell it all because he's my brother, and I wasn't going to do that to him. But it was real money I made. Not change-your-life money, but it wasn't pocket change."

She bought another show horse. She also went through a divorce, and some of the stock winnings ended up "getting thrown into that," she says.

According to Lenk, a couple of his venture capitalists came out with several hundred millions of dollars in profit. "There are good venture capitalists who are really amazing and will go to the mat for you and support you," he says. "And there are hit-and-run venture capitalists who will exploit your efforts and sell you down the river as soon as possible. I had some of both."

Lenk is bitter at some whom he had hoped would reinvest part of their profits to give eToys another holiday season and a chance to survive. Mostly, I think he's angry at having had to try to build a business while so many others were just grabbing at money. He likes to say he was a "rookie" when he started eToys; in fact, he was a surprisingly naive rookie. When he went out looking for investors, he was surprised to have attracted some greedy ones eager for a quick killing. Everything got bid up. The greed hogs had a feast; the builder lost control of his plan.

Idealab, which had invested $200,000 in Toby Lenk's company, sold some of its eToys stock six months after the I.P.O. for about $195 million, according to its chairman, Bill Gross. By e-mail, Gross said that the sale was in the best interest of Idealab's shareholders. I asked him if he thought Lenk should have sold some of his own stock. "Everyone who participates in a successful venture deserves to be rewarded for doing so," Gross replied.

But Toby Lenk couldn't cash in as his company tanked -- on some level, it wasn't even a conscious choice -- because if he had, what would that have said about him? "Those first 35 people who invested, some of them took $25,000 and made several million dollars," he says. "My sister and brother-in-law were part of that and made some good money, and they said thanks. So did a couple of others. But you know what? None of the rest of them ever thanked me."

Copyright © 2002 Michael Sokolove