At 33, Russel Medeiros is taking cash and expertise he earned at America Online and plowing it into new ventures.

Bill O'Luanaigh hooked up with other AOL alumni to form IXOL, a venture and advisory fund. Photos by Mark Rhodes

By Estelle Jackson
America Online sure left its mark on Bill O’Luanaigh. As a content producer for the Dulles-based Internet giant’s weather, health and commerce channels, O’Luanaigh lived through the company’s explosive growth in the 1990s. For four and a half years, he worked exhausting, 18-hour days — a schedule that put tremendous pressure on his family life. A friend, he says, once described AOL as "a Mad Max machine, wrapped in duct tape [and] hurtling through space." O’Luanaigh agrees. "We were inventing as we went," he says. "I nearly had an aneurysm."

Then last April, O’Luanaigh, 37, decided he’d had enough. He quit the company and went home "to see what my kids looked like." He bought his wife an expensive gift — an SUV — and tried to figure out what to do next.

He wasn’t on the sidelines for long. By October, O’Luanaigh was back, joining The .Com Group, a small Reston-based start-up that analyzes Web site usage to improve clients’ e-commerce functions. There he joined another newly minted AOL alumnus — Russell Medeiros, a 33-year-old veteran of AOL’s user interface design group. Medeiros was the new company’s vice president for interface design; O’Luanaigh was vice president for product development.

It wasn’t just AOL credentials, though, that opened doors for O’Luanaigh and Mederios. The stock options both had gathered during their time at AOL gave them cash to invest in the fledgling company. Both put money in, though they won’t say how much. O’Luanaigh calls himself a "small investor" in The .Com Group. "I’m not putting in huge chunks of cash," he says. Most of his net worth is still in AOL stock.

There’s no guarantee The .Com Group will succeed. It is a sure thing, though, that others will come out of AOL with cash and a yearning to try something new — and they’ll find plenty of companies anxious to use their money and expertise.

AOL’s phenomenal growth is the source of this spinoff energy. Three years ago, the company had 4,700 employees and revenues of $2.2 billion. Today it has 12,100 employees, and its 1999 revenues were $4.8 billion. The stock options it has traditionally handed employees are today valued at $12.4 billion.

Employees have already cashed in a sizable share of options. From 1997 to 1999, more than 190 million employee stock options were exercised. AOL’s administrative costs during the same period rose from $220 million to $408 million, due in part to payroll taxes from the options.

The proposed merger of AOL and Time Warner could accelerate AOL’s influence as a spinoff machine. Some AOL employees might be pushed out the door from the potential clash of corporate cultures in the merger. Plus, the change in corporate control will alter the rules surrounding stock options. Normally, employees have to wait several years before becoming vested, but the merger would enable all AOL employees to sell their stock just one year after the deal closes.

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Medeiros is just 33, but at AOL he was an old-timer. He joined the company in 1987 and worked his way through the ranks in marketing and as a producer. He rose to the post of lead interface designer, creating Web sites and message boards for clients.

In November, Medeiros decided it was time to leave. His 12 years with the company gave him "high mileage" with stock options, he says, but it wasn’t the lure of financial independence that made him leave. "I was just at the point where I felt my institutional knowledge and skills should be applied to the next groundbreaking service," he says.

He learned about The .Com Group last year after his wife met an old friend, company president Simon Rakoff, at a high school reunion. As vice president of the new company’s interface design, Medeiros is putting his experience to work developing a new software the company will unveil this spring. The software will make it easier for users to monitor such things as Web site traffic and the effectiveness of promotions. This kind of information is already available to clients, he acknowledges, but The .Com Group’s software presents it in a speedier, more eye-appealing format.

Medeiros likes the challenge and the risk of his new venture. He wants the company to succeed, he says, and "to think I helped make it hugely successful."

O’Luanaigh’s career seemed to be taking the same course as Medeiros’. But just four months after joining The .Com Group, he’s already changed direction. At the end of January, O’Luanaigh abruptly quit and turned his focus to a fledgling business incubator group.

The incubator grew out of a series of mostly social get-togethers that O’Luanaigh organized with a handful of former colleagues after leaving AOL. They called themselves the "XOL Group" and met for networking and to socialize. "We had lunches and dinners, with no formal agenda except to get together," he says. "There were a lot of smart people."

Late last year, O’Luanaigh and a few of these AOL colleagues formed IXOL, which stands for Interactive Executives Online. It’s a little of everything — an advisory group and venture capital firm wrapped into a profit-making business. The idea is to create "an umbrella company where young people can walk in ... be given office space, access to legal counsel and financial advisors. We hope it will be one-stop shopping for new technology businesses."

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The scattering of AOL wealth isn’t a recent phenomenon. Phil Gross, who was AOL’s chief financial officer from 1986 to 1989, has been investing in companies in Virginia and Maryland for years.

Gross’ first move after AOL was to join a Vienna-based telecommunications start-up called Phone Based Systems. When AOL went public in 1992, Gross, 47, was able to cash in his stock options and start investing. He left the Vienna firm after three years and joined with another entrepreneur to start a company in Rockville, Md., that verified physician credentials for health care organizations. Gross and the other investors sold the company in 1997 for an undisclosed amount.

Another venture didn’t do so well. Gross started Imark Technologies in Herndon in the mid-1990s. The company, which provided security for billing procedures for publishing companies, was "an excellent opportunity," Gross says. But he left the firm in 1998, and it later went bankrupt.

Gross’ next venture was AtYourBusiness.com, based in Rockville. Gross says he has invested "heavily" in the new company and serves as its president and co-CEO. The company is a Web-based service that offers employee management services, such as payroll and benefits, to small businesses. It raised $5 million in capital last year; Gross hopes to build it into a leading provider of outsourced services.

Though Gross is working in Rockville, he still has money in Northern Virginia. He has invested in a handful of small companies there: Innovative Solutions Group in Sterling and Sandbox.com, Ikimbo and Ronbotics, all in Reston. Gross is involved in all, either as an advisor or as a member of their boards.

He still keeps an eye on his old company. The proposed merger with Time Warner is unlikely to change AOL’s presence in Northern Virginia, he says. Under the terms of the deal, New York will be the company’s official headquarters, although Steve Case and many operations will remain in the commonwealth. "I can’t imagine AOL moving its operations. The expense wouldn’t make sense," Gross says.

With or without Time Warner, the number of AOL spinoffs will likely increase, Gross says. "It’s a trend that has already started and will continue."