From MIT Blackjack Team to Amazon Acquisition: The Lexcycle Story

5/8/09Follow @gthuang

Neelan Choksi says he has an “addictive personality.” That might explain why he carefully orders an orange juice at the espresso bar, while I jack up my caffeine intake with another 12-ounce latte. We’re sitting at the Espresso Vivace in South Lake Union on a quintessentially rainy Seattle afternoon in early May.

Choksi’s company, Lexcycle, has just been bought by Amazon, and he’s in town doing some house-hunting. Lexcycle (pronounced like the word “lexical”) makes the e-book reader application Stanza for the iPhone, iPod Touch, and desktop. The three-man startup is based in Austin, TX, and Portland, OR. Interestingly, Choksi says that just a year ago, he barely knew anything about the e-book industry. Let’s just say the man has gotten up to speed fast. How did he do it? It turns out Choksi has always been a remarkably fast learner, and the twists and turns of his career to date are already enough to fill a how-to book on entrepreneurship.

The story goes back to 1988-1992 when Choksi was a chemical engineering major at MIT. He was a member of the famed MIT Blackjack Team, and says he netted upwards of $100,000 for his efforts. (He says he rarely plays anymore.) After graduating, Choksi worked at Exxon Research and Engineering for four years, developing software to solve problems for refineries. He then went to business school at the University of Chicago and studied abroad at London Business School. That’s where the startup bug first bit him, and he ended up enrolling in a bunch of entrepreneurship classes. “I could not get enough,” he says.

After a six-month stint at Andersen Consulting (now Accenture), he quit to work on his first startup. He had to write a check to leave—which he could afford, thanks to blackjack—but it was well worth it. “I realized that each level above me was less and less the type of person I wanted to be,” Choksi says.

So in 1999, he joined TechTrader in Washington DC, which had been started by two of his friends from MIT. It was a business-to-business marketplace software vendor, and they raised $21 million in venture funding in the heyday of the Internet boom. “But we spent $29 million, and didn’t have the revenues to make it up,” Choksi says. What’s more, he says, “We didn’t know anything about the industry we were working with.” It was a classic dot-bomb, but Choksi got valuable experience as a “utility player,” he says, working on everything from engineering to marketing and sales.

TechTrader went under in July 2001, leaving Choksi and his team to think about what to do next. “We thought, ‘What do we know about?’” he says. The answer was software development for the Internet. Technical things like Web caching and object relational mapping, having to do with accessing scalable databases. So they bootstrapped a new company, called SolarMetric. In the early days, Choksi took odd jobs to support himself, including designing a website for a nonprofit. By 2003, the company was starting to take off, and Choksi moved back to his home state of Texas (he grew up in Corpus Christi), settling in Austin. SolarMetric grew to 13 people, never took outside financing, and was acquired by BEA Systems in 2005. The size of the deal was never announced, but Choksi jokes, “We were part of the under-$100-million club.”

Choksi stayed at BEA for about a year, leading the company’s open source effort in object-relational mapping tools. From there, he was recruited by the software firm Interface21—now called SpringSource—which makes the popular open source Spring Framework for IT organizations. Choksi served as chief operating officer, leading the effort to raise a $10 million Series A round from Benchmark Capital, and helping grow the company from 25 people to 120-plus in a year and a half. But SpringSource is headquartered in San Francisco (prior to Choksi it was in the UK), and Choksi says he got tired of splitting his time between Texas and California. “I didn’t want to travel anymore.”

By then it was the summer of 2008, and it was time to return to his passion for startups. “I’m at my best when it’s smaller,” he says. “I’m more of a general manager, not the expert in any one discipline.” It was also time to think about getting back together with his old friends from the SolarMetric days. “I didn’t realize how well we’d worked together until I worked with other people,” Choksi says.

So last summer, Choksi hosted a small gathering at his house in Austin. Marc Prud’hommeaux, who had recently quit BEA, brought with him a 120-slide Keynote deck about e-books. He also had his wife’s Amazon Kindle—and the recently released (July 13) first version of Stanza for the iPhone. This was software that lets you browse, purchase, read, and share books on your mobile device. They talked about the industry and all the possible opportunities for a new startup, and further developed the idea for an e-book reader for mobile devices. With that, Choksi and Abe White, a Dartmouth computer science grad, decided they were in.

Although the three Lexcycle founders lived in different places—Prud’hommeaux in Portland, OR, White in Houston, TX, and Choksi in Austin—they had worked together for about a decade in four different companies, so they didn’t need a lot of communication or ramp-up time to get started. Stanza became a smash hit, gaining a million users in the first six months (now it’s up to about 1.7 million users in more than 60 countries). The iPhone application is free and has been used to download some 8 million books.

Getting the word out about Stanza has been a real rush. “It’s been crazy,” says Choksi. “For the first time in a decade, I could demo my own product.” As for the particular application he has focused on, he adds, “When you’re bootstrapped, you’ve got to really find the thing that will give you the best bang for the buck.” In fact, a recent report on CNET (citing senior analyst Ben Lorica of O’Reilly Media) suggests that e-books are the “killer app” for the iPhone. Which, of course, sets up a showdown between reading books on the Kindle versus the iPhone and other mobile devices.

And brings us to the Amazon acquisition of Lexcycle last week. Choksi couldn’t add much about the terms of the deal or the strategy behind it. But suffice it to say he, Prud’hommeaux, and White are all moving to Seattle this summer, and I would guess they will be kept together as a sort of “innovation team” for the e-book sector. It’s also not uncommon for Amazon to fund or acquire competing projects within a given sector (see LibraryThing and Shelfari). But will Amazon open up the Kindle to accept other types of code like Stanza? Will Amazon use Stanza to monopolize e-books on mobile devices? Stay tuned.

Choksi could talk a bit more about Stanza itself, and he gave me a demo on his iPhone. “We want people to discover the book they want to read, buy it, and start reading it, all within the app. And not have to go to your laptop,” he says. The user interface is pretty cool—if you’re reading a book, you can tap on the screen to advance the page, which enables one-handed reading while you’re riding the bus or the commuter train, say. There are also no menus visible on the page while you’re reading, which Choksi says eliminates distractions. (I’m one of those people who greatly prefers to hold a physical book in my hands, but I can see the appeal of the iPhone reader for someone traveling or wanting quick access to a particular passage.)

For now, what all this means is that the Seattle tech community is gaining some fantastic new talent. “I’m excited about coming someplace where the software scene is so active,” Choksi says. Comparing Seattle to Austin, he notes that the latter is more hardware focused with all its chip manufacturers, and that it has a very strong bootstrapping culture. “Bootstrapping forces you to have a ridiculous focus on the customer,” Choksi says. “If you listen to the right customers, they’ll tell you what to do, what they want from you, and what they’ll be willing to pay.”

All in all, it sounds like Choksi and his fellow founders will fit in very nicely here.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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