Livingston: If Robert was so reluctant, why did you start the company with him?

Graham: Well, first of all he was my best friend, so I really trusted him, but he's also one of the best programmers in the world. I'd rather have a quarter of his brain working on some problem than 100 percent of most other people's.

You know, in retrospect I think the big problem with our investors was that we weren't forceful enough with them. I think investors like to be bossed around, like horses. It reassures them when you're in control. But these guys were much older than us and had given us huge sums of their money, so it was hard for us to boss them around.

Graham: There were always people trying to buy us. There was another one just at the point where we found Fred Egan—a Japanese company that later made an imitation of our software and went on to become a big success in Japan. Rakuten, they were called.

Livingston: They copied you?

Graham: Not very well. It's sort of like if you copied a dog by taking a photograph of a dog and sticking it onto a cardboard cutout. From certain angles it would look like a dog, but if you threw a stick and yelled "fetch" it wouldn't do anything. The Japanese market wasn't as far along then, so in their market, this was pretty advanced. But the entire time, there were always people trying to buy us, of various levels of seriousness.

It was pretty miserable. Basically, the angel investors played chicken with us. They knew we couldn't get money from anyone else, since we didn't even know for sure if we owned our software. So they proposed to do a cramdown round where they would refinance the company, I believe, at a pre-money valuation of zero—meaning all the common stockholders were completely wiped out. To keep us around, since they kind of needed us to write the software, they were going to give us options. So we called their bluff. We said, "If you do that, we're leaving."

Livingston: You and your cofounders said you were leaving?

Graham: Yeah, all the technical guys. So when it came down to that, they compromised and we ended up doing a funding round at a low, but reasonable, valuation—$12 million, I think. We got bought only a couple months after that round closed. But we had to do the round because we were in debt at that point.

Another advantage of telling the truth is that you don't have to remember what you've said. You don't have to keep any state in your head. It's a purely functional business strategy. (Hackers will get what I mean.)