A Consultant Goes From Rags to Riches to Rags

At eight o’clock on a Friday night, Jeffrey Seiff is still at work. He works late many nights, now that he isn’t a millionaire anymore.

He sits at his dining table, pounding at his notebook computer to finish a proposal for a prospective British client. He has credit-card bills, rent and student loans to pay, too. But the late nights reflect his biggest worry — his tax bill, the government’s reminder of what he once had.

“I’m feeling poor and pressured,” Mr. Seiff says.

This isn’t how it was supposed to be, back when Mr. Seiff was a wealthy dot-commer, way back four months ago. He set his own hours; he jetted off to Spain for vacations; he crafted a plan to start his own company. Back then, his portfolio surpassed $1.2 million.

Then came the April plunge in tech stocks. Minus all the taxes, the student loans and an odd debt or two, he has about $200,000 of net worth left of a fortune built on tech-stock options. In less than 24 months, the 30-year-old has gone from penniless Stanford M.B.A. to millionaire Web start-up employee to owner of a small consultancy with huge bills to pay and shrunken means.

In his small dining room, Mr. Seiff sits surrounded by odd artifacts of good times interrupted. His dining table is part of a graceful set with yellow damask chairs he bought a year ago. Behind him in a glass-fronted cabinet, 50 or so bottles of wine stand as mute witnesses to carefree buying sprees in Napa Valley. Now, he says, “I’m not buying anything anymore.”

Getting on his feet, Mr. Seiff rifles through one of the piles of paper heaped on the table. He pulls out a stack of documents three inches thick: his taxes. He owes $86,000 in taxes, largely on shares he sold last year. “My whole life is mapping out differently,” he says, compared with what he grew to expect during the hard-working but heady days of the Web boom.

“When you give up your life for a protracted period of time — no dating, no hobbies — it seemed like the money was justified,” he adds. “When it’s all snatched away, you’re suddenly wondering why you’re doing this to begin with.”

What’s extraordinary about Mr. Seiff’s wild ride is how ordinary it is in Silicon Valley. The free fall of many Internet stocks since April has forced thousands of employees at Web start-ups to abruptly scale down their lifestyles and expectations. While the lucky few at the top of company ladders are still millionaires or even billionaires — on paper, at least — a far larger number of Web-heads are living the tail end of the rags-to-riches-to-rags story.

The pain is perhaps sharpest among the younger Net set, a generation that had never experienced a market downturn in their professional lives. The sky was always the limit. Now, some are giving up on buying homes or postponing plans to have children. Big tax bills like Mr. Seiff’s are increasingly common among those who exercised their stock options.

“It’s very difficult to stay grounded on the value of your work,” says Brett Atwood, a former manager at RealNetworks Inc. who has recently given up on his cherished dream of buying a house with cash. “When your stock doubles in a month, you develop unrealistic expectations that it could happen again.”

‘Ticker Shock’

In Silicon Valley, which coined the term “Webslaves” for the rank-and-file who sacrifice their personal lives for a shot at riches and glory, the pain is as personal as it is financial. At the San Francisco-based Money, Meaning and Choices Institute — established two years ago to help the suddenly rich handle their wealth — the founders have already coined a new term, “ticker shock,” for the struggles of their suddenly-less-rich clientele.

Friends don’t always share the pain, particularly those who didn’t join the dot-com gravy train.

After all, Mr. Seiff, for one, still has work as a consultant for his own firm, called Intensivity, and his net worth is still higher than when he started. One of his friends, Rob Coombs, works for an insurance company. He says he had to endure Mr. Seiff’s boasts about his growing wealth last year and had little sympathy when Mr. Seiff began bemoaning his falling worth. “Maybe this means I’m a bad person,” Mr. Coombs says, “but I thought: ‘Good — none of you were worth this much money anyway.’ ”

Like many of the young dot-com workers who have flocked to Silicon Valley, Mr. Seiff didn’t aspire to Internet wealth at first.

The youngest child of a Long Island, New York, family, he was bored by his economics classes at Yale University. After graduation, he headed to Russia to teach at a small school. But once there, he found himself growing increasingly immersed in the business side of the school. Returning to the U.S., he joined a Boston consulting firm and later headed to Stanford Business School.

There, he caught Internet fever. In 1998, a friend told him about a new consulting start-up named Scient Corp. that focused on the Web. He quickly persuaded the firm’s principals to hire him as a strategist, and in that year, he became Scient’s 41st hire.

The job paid roughly $100,000; Mr. Seiff declines to be specific, except to say he received options in the first year to purchase between 10,000 and 20,000 shares of Scient stock at $1.10 a share.

From his first day at work, Mr. Seiff was caught up in an amazing ride. The then-little-known firm was bagging top-drawer clients — names such as Chase Manhattan Corp. and eBay Inc. Scient was growing like crazy, doubling its ranks every quarter. Demand for its strategic-consulting services exploded, and Mr. Seiff began to work six days a week, traveling on a moment’s notice.

As busy as it was, life at Scient was good. He attended sales meetings, celebrating as Scient repeatedly beat some of the biggest names in the technology-consulting business. He delighted in the way colleagues were teaching him the latest thinking on the Web. In December 1998, Scient threw a lavish Christmas bash, paying the air fare for Mr. Seiff’s date to fly from New York to attend the festivities — an unaccustomed break from a work schedule that left little time for enjoying all the money coming in.

As word of Scient’s success began to spread, friends and acquaintances began contacting Mr. Seiff asking about jobs there.

Eyes lit up when he mentioned his employer’s name. “It was like being the popular girl in school,” he says. As the Nasdaq Stock Market soared, he saw that he could be far richer, far sooner, than he had ever imagined.

In April 1999, a few weeks before Scient’s initial public offering, Mr. Seiff took his first vacation from the firm, embarking on a whirlwind tour of Spain. When he graduated from Stanford, Mr. Seiff had no assets and owed $65,000 in student loans. But after he had worked for Scient less than a year, money was no object. For 10 days, he traveled first class through Barcelona and Ronda, snapping up a pricey plane ticket to Seville at the last minute. “I didn’t plan anything,” he says, estimating that the trip cost $10,000. “I didn’t care about what I spent. I figured it cost a week’s worth of options.”

The day before he left for Spain, Mr. Seiff exercised all of his vested options. Like most other Internet companies, Scient prohibits employees from selling shares during a “lockup period” for several months after an IPO. But the company lets employees exercise their options — buy shares at a previously set “strike price” ($1.10 in Mr. Seiff’s case) — well ahead of when they can sell the stock. By exercising his options so close to the company’s IPO, Mr. Seiff avoided the alternative minimum tax. That decision proved fateful, however, a year later.

Mr. Seiff’s concern back then was that his success was costing him dearly in another area: his personal life. Frequent absences and long hours made it difficult to keep up with friends. And he was starting to sense that some of his friends resented his sudden wealth. “I’d talk about the Internet being so cool, my co-workers are so cool, I’m worth tons and tons of money,” he recalls. “In retrospect, I can see why it gets trying.”

His tales were particularly hard on friends who had chosen not to ride the Internet bandwagon. “He spoke with such bravado about how much his options were earning,” says Mr. Coombs, a 33-year-old manager at State Farm Insurance. “I work very hard, too, but that kind of windfall isn’t coming to me. After a while, I didn’t want to hear about it.” Mr. Seiff’s young roommates, who were working for far lower salaries, grew increasingly distant, a situation exacerbated by his long hours and heavy travel schedule.

Sleeping in a Basement

Things got so bad that by the time Scient went public, Mr. Seiff was effectively homeless. His options for that year alone were now worth nearly half a million dollars, but his roommates had disbanded while he was in Spain, and he didn’t have time to find an apartment. For nearly two months, he bedded down in a friend’s basement. When the friend needed the room for guests, Mr. Seiff was reduced to prowling around the cubicles of Scient at night, asking co-workers if he could stay with them.

“At some point, he was just working too hard,” says Zerlina Chen Hayes, a Stanford classmate who works at start-up Productopia Inc. “He’d have dinner with me, then head straight back to work.”

In early July, Mr. Seiff decided he was financially secure enough to light out on his own in consulting. He gave Scient notice, walking away from three years of unvested options. “I had no life, no hobbies, and I’d gained 20 pounds,” he says. “I’d made more money than I ever thought I would. I could not work for six months and still survive.”

He found a one-bedroom apartment. Owning almost no furniture, he headed to a sale at a Pacific Heights boutique and spent $11,000 on the spot on living-room and dining-room sets.

Mr. Seiff’s Web boom continued. For the next five months, Scient’s shares marched relentlessly northward — to $32, to $68.75 and then $90.625 — sending his net worth up to the million-dollar mark. He set up Intensivity and snagged the Web-hosting and services provider Exodus Communications Inc. as his first big client.

Working from home, Mr. Seiff couldn’t resist the temptation to check the progress of his portfolio all day. In the fall, his net worth was growing tens of thousands of dollars some days, a fact he pointed out in e-mails to friends.

“You were right, I made another $58,000 while I was sleeping!” he exulted in a Dec. 10 e-mail to Hizam Haron. “Another dinner on me, I want to celebrate.”

“Market apparently went crazy today; Scient is back at 90 from 85,” he wrote in a Dec. 21 e-mail to Mr. Haron. “And everything else I’ve been buying went up by something like $25,000 altogether, too.”

Mr. Seiff was making more in a few hours than many of his close friends earned in a year. He escorted a visiting teacher from Russia to Napa Valley, and then astounded her by dropping $2,000 on wine. He dined at the best restaurants and shocked friends with his impulse buying. “We were looking at floor cushions,” recalls Mr. Haron, a San Francisco graphic designer. “I said I liked them, but they were $230. He said ‘I’ll take two.’ ” I couldn’t believe it.”

In December, Mr. Seiff landed consulting work for eBrainstorm Inc., a Miami Web-development firm focused on Latin America. The start-up’s principals soon asked him to join as chief operating officer and transfer Silicon Valley operating practices to their environment. “It was a chance to take some of the things I’d learned and apply it at a much more senior level,” Mr. Seiff says. The pay package didn’t hurt, either: Salary in the mid-$100,000s, plus a generous expense account that included many trips back to San Francisco and housing in Miami.

Scient shares kept on rising. But Mr. Seiff’s rocket ride began to worry his parents. As proud as they were of him, they urged their youngest son to start selling stock. Operators of a small apparel manufacturer, Mr. Seiff’s parents had personally experienced the perils of the stock market themselves, losing a bundle in the 1987 crash.

‘Full of Surprises’

“We were being conservative,” recalls Carolyn Seiff, who works as a commercial actress. “Those of us who have lived longer have already lived through downturns in the market, and we’ve also lived through sudden accident and death. We know that life is full of surprises.”

But while Mr. Seiff was in Miami, Scient stock began to rocket upward at an even more explosive pace, reaching its peak of $130 a share on March 9. As a rich man, Mr. Seiff, already tired of the transcontinental commute, decided it was time to act on his idea of starting a company that would take advantage of the burgeoning interest in wireless Internet devices. His last day at eBrainstorm was April 1.

By this point, Mr. Seiff had grown convinced that Scient’s shares had risen too quickly: He had already sold 10% of his stock last year at big gains to reinvest in other stocks, and decided to sell an additional 550 shares partly to prepare for the coming tax bite. But by studying models through carefully constructed spreadsheets in his notebook computer, Mr. Seiff realized that if he sold the bulk of his shares before April 13 — a year and a day after he’d first exercised his options — he would have to pay the far higher tax rates for short-term capital gains. That would mean an additional $100,000 in taxes. Mr. Seiff would still be ahead so long as Scient’s shares didn’t fall far below $100 in the next two weeks. “I was gambling,” he says. “Wouldn’t you wait two weeks for $100,000?”

Then Scient’s shares went into a tailspin, skidding to the mid-60s. Mr. Seiff wasn’t happy, but he had seen this before: Scient’s shares had bounced down and up numerous times, often skidding 25% before soaring even higher. And now, numerous Internet companies that he held in high regard were also being pummeled. Sensing an opportunity, in late March Mr. Seiff had taken the money he had just gotten by selling Scient stock plus the savings he’d put away for his taxes and invested it in a variety of Internet stocks.

The result was disastrous. Instead of bouncing back, the market became even more vicious, punishing Scient and destroying his latest investments.

On April 17, the deadline to file his taxes, Mr. Seiff got out of bed and turned on his computer. Everything he had invested in had sunk to lows he didn’t think possible: Scient, $130 a share just five weeks earlier, closed at $30.25. Shares of Art Technology Group Inc., an e-commerce software maker he had just invested in, slid from the $70s to $33.1875. His net worth had plummeted 78%, and he still owed more than $80,000 in income tax on the Scient options he had exercised.

Mr. Seiff tried to assess the damage. First he had to rebuild his spreadsheets, which hadn’t been constructed to account for losses. “At the end of March, I was going home thinking I could do anything,” he says. “A few weeks later, I don’t have $25,000 in my bank account.”

Almost overnight, his life had completely changed. For weeks, he’d been planning to get a dog, vowing to pay his landlord whatever it would take to get permission. Now, that seemed foolhardy. Plans for another European trip went out the window, too, as did brief thoughts of purchasing a home.

Moreover, executing his business idea, which he believed could take months of groundwork, would have to be put on hold.

Unwilling to liquidate his holdings at their lows, Mr. Seiff told his accountant he would pay off his taxes gradually. He would have to return to his consulting business to raise the money.

It was about this time that Mr. Seiff discovered he couldn’t expect solace from friends. “He was telling me that it doesn’t make any sense, that everyone had gone crazy,” says Geoffrey Benjamin, a recent University of San Francisco Business School graduate who worked at Mr. Seiff’s consulting practice. “I paused and said that everyone was saying the same thing when the market was going up. It’s hard to be sympathetic because it was all fake money to begin with.”

Half-Baked Home

Back home, Mr. Seiff makes mental notes of what he still needs to finish his one-bedroom apartment. The living room, its thickly painted walls illuminated mainly by an aging Victorian-style fixture, could use a wall hanging or two; the bedroom has two mattresses on the floor and little more. “This place doesn’t feel like home,” he says. “I never finished buying stuff.”

Mr. Seiff spends many hours working there, the cords connecting his laptop computer snaking from the kitchen. The money is feast or famine — some weeks he sells $30,000 engagements, while others he spends waiting for clients’ payments. Convinced the market correction was overdone, he has invested in a new set of stocks that are now rising.

Mr. Seiff’s business is humming along nicely. He has completed engagements not only for big companies like Exodus and WineShopper.com, but also newer start-ups like ProductPOP, a venture that applies traditional marketing methods to online sales. He’s in discussions with another consulting firm, Liquid Thinking, about joining forces on future projects.

A gradual recovery in Scient’s stock and his other investments helped boost his assets recently. But then Scient’s stock plummeted 20% on June 26 after two of its dot-com clients filed for bankruptcy.

Mr. Seiff says he has learned at least one lesson: Internet workers often sacrifice too much for that ephemeral promise of getting rich quick. “When your job becomes your life, it also becomes your sense of self-worth,” he writes in a recent e-mail, “and that has long-term consequences that we only think we can sidestep.”

Crossing the street on a recent warm June day, Mr. Seiff recalls a thought he had while crossing a street on April 17 — a thought he has had many days since — when he was dodging traffic to mail in the tax return that would help lay waste his fortunes. “I felt,” he says, “like God was telling me, ‘I told you so.’ “