Execs leave the nest: McCaw Cellular alums find world is their high-tech oyster

Second of two parts

The McCaw mafia is almost incestuous. Its members invest with one another. They compete with one another. They sit on boards together. Their companies buy from and sell to one another. They consult each other when they need advice on buying a new plane.

Looked at another way, the McCaw mafia bears a similarity to another powerful dynasty. Just as Microsoft spawned a litany of Baby Bills, another Pacific Northwest company — McCaw Cellular Communications — produced a string of Baby Craigs.

VoiceStream Wireless, Amazon.com, InfoSpace, Coinstar: All were seeded with capital and employees from McCaw Cellular, the Kirkland company founded by Craig McCaw that became the country's first nationwide wireless carrier.

And even as McCaw's empire declines and the telecommunications industry sinks deeper into an economic quagmire, his second- and third-generation offspring continue to lay the building blocks of the Seattle tech economy. The networks they formed and the relationships they built speak volumes about how business is often done today.

The McCaw diaspora

The $11.5 billion sale of McCaw Cellular to AT&T in 1994 was a financial supernova that scattered its executives and capital throughout the Seattle economy. Many were still young — in their 30s — and many had profited handsomely from the merger.

Some started their own ventures, like John Stanton, president of McCaw's cellular division, who began rural carrier Western Wireless, out of which came VoiceStream. Many went into venture capital, investing early in companies such as Amazon.com.

A few stayed with McCaw as his company, Eagle River Investments, began new projects such as Nextel Communications and Nextlink, which became XO Communications.

But most left when AT&T came. McCaw Cellular had been a nimble start-up, growing cell sites like dandelions across the country. AT&T was more like a giant redwood — stable and massive but slow-growth.

At the time, McCaw's young, brash executives flippantly referred to themselves as the McCaw mafia, and they behaved like Jedi Knights taking on the Death Star Bell companies.

"You had a lot of latitude to do things (at McCaw Cellular)," says Tom Alberg, who was executive vice president for legal and corporate affairs. Today, Alberg is one of Seattle's most prominent venture capitalists. "When John Stanton left, he didn't say, 'Maybe I should go work for AT&T or Bell South.' He started buying licenses."

Some of the companies that alums funded succeeded — Amazon.com — and some are history — Homegrocer.com. But the net effect has been the creation of a McCaw ecosystem: The alums seeded technology and wireless companies; those companies matured and produced the seed funding for more companies.

Network of relationships

The relationship is more than chronological. The Baby Craigs form partnerships, sell to, buy from and compete with each other.

Follow one strand: Alberg and Keith Grinstein, who ran McCaw Cellular's aviation division.

Both invested in 1995 in Amazon, then just a small startup. When Amazon went public, Alberg took the capital from that investment and started Madrona Venture Group, which now manages $250 million in venture capital. Grinstein began venture firm Second Avenue Partners and joined Madrona as a strategic director.

One of Madrona's investments is Wireless Services, which operates messaging services for Nextel Communications, the wireless carrier whose majority shareholder is Craig McCaw. Grinstein serves as vice chairman of Wireless Services and hired Kevin McKeand, who was a regional vice president and general manager at McCaw Cellular, to become its chief operating officer.

Rufus Lumry, who raised most of the financing to build McCaw Cellular, was an early investor in InfoSpace, which competes in some markets with Wireless Services. InfoSpace and Wireless Services have partnered with TeamOn, a wireless-application developer that Grinstein's Second Avenue Partners invested in.

"I'm a believer in the cluster effect," says Alberg. "The growth is where there are already companies. Clusters start because McCaw gets excited about wireless."

Five of the 10 largest wireless companies in the U.S. were started in Seattle, and four — AT&T Wireless, VoiceStream Wireless, Nextel Partners and Western Wireless — are still based here.

Culture of entrepreneurs

The reason many McCaw alums chose to stay involved with the entrepreneurial community goes back to McCaw Cellular.

"What you had was a culture that took chances on young people, more especially than should have been given," says VoiceStream's Stanton, who started working there at 26.

Craig McCaw trusted the company's operation to his employees, partly because he liked to focus on planning long-term strategy — he preferred to ignore the details. Organizing investor road shows, raising money, buying cellular licenses, building the network — that all fell to his employees.

"Here's all the rope you want," is the way Scot Jarvis describes it. "You can either hang yourself or do a good deal."

Jarvis, now a partner at Cedar Grove Investments, started in McCaw's cable business at 25. The first time he landed a cable market in a deal, he called his mom.

"I said, 'Mom, I'm about to sign a $1.1 million dollar deal, and nobody's looking over my shoulder.' "

The company's acquisition group routinely did $20 million deals in the mid-1980s without senior approval. By comparison, after AT&T bought the company, every transaction over $2 million had to approved by AT&T headquarters in Basking Ridge, N.J., or as they called it, "Carpetland."

McCaw also encouraged unconventional thinking in his employees. When they went on retreats, they didn't go to hotels in Dallas and sit in meeting rooms.

McCaw sent them to Homestead, Fla., where they slept in Boy Scout barracks, took pipe showers in the mud and were placed on vegetarian diets. They spent their retreats building homes for Habitat for Humanity.

"Some of them are smarter than I am," McCaw says. "Who knows if they won't accomplish far more? I think it's almost like school; you don't learn from the teacher, you learn from the other kids."

Sharon Pian Chan can be reached at 206-464-2958 or schan@seattletimes.com.