Insights hed: Vulture capitalists dek: When a four-year window was shortened, more dot-coms bit the dust. dek: From rags to riches to layoffs and liquidation: one company's story.

A friend of mine is the CEO of a local dot-com. I did some moonlighting for him in exchange for cash and stock when the phrase New Economy was on everyone's smiling lips. At the time, I thought it was a smart move to forgo real dollars for stock. The company had a charismatic leader, some of the best developers in the field, and what seemed like a good business plan. Plus every investment journal hyped the "huge" market for its niche.

When I worked for him, it was the leanest outfit in the business. Borrowed classrooms had been converted into an office his partner called "the mosh pit." The company worked almost exclusively with contractors straight out of school, who worked mostly for penny stock. And the founders lived on secretary wages.

Several months after working next to my friend in the mosh pit, he gave me a tour of the company's hip new digs. They weren't exactly plush--he got them for just about half the price of anything else he could get. But somehow, my friend had changed. His hand and ear seemed permanently glued to a cell phone, and all that came out of his mouth was some kind of strange investor lingo. Apparently, his new circle demanded a chameleon approach, but he couldn't seem to turn off the slick shtick and show his true identity as a regular Joe.

I puzzled about that visit for weeks. From all outward appearances, the company was going great guns. Developers were running between their space-age modular offices and conference rooms, white-boarding and coding like mad. Yet how could a company that lived check-to-check, but always seemed to make payroll, suddenly become hyperslick? And what was up with my friend?

I never really figured out the transformation in my friend and his company, though appearances can be deceiving. According to him, it was still struggling to get anything more than a small placement here or there, and it never would spend outlandishly. But he needed to raise capital and had to put on a good face to investors. And repeated investor objections had molded my friend into a freewheeling, big-spending, paper millionaire.

It was an interesting time in the venture capital business, one that hopefully will never be repeated. Investors had tons of cash to unload and little patience for due diligence. The first criterion for many VCs was how much the CEO could spend in a year. Even though my friend could have gotten by with $2 million a year, they wouldn't consider his proposals unless they called for upwards of $10 million--better yet, $10 million per quarter, most of which would be spent on brand building.

I guess it was mostly a case of too few people running too many large venture funds. They simply didn't have the time to unload all their cash and do it prudently. It takes five times the due diligence to appropriately fund my friend's company and four others. They'd much rather give it all to one of the five candidates (pick one out of a hat) and hope for the best.

It's hard to believe that this was the venture climate just over a year ago. I need not rehash the crash of the dot-com titans. It is worth noting, however, that free-spending VCs have fallen the hardest. And they're not falling gracefully. As they squash their investment bugs on the way down, they'll squeeze as much money out of their investments as they can while there's still some juice left. This is why VCs are often referred to as vulture capitalists during downturns. If I were in their shoes, I'd try to keep the investment alive as long as possible. But what do I know?

While my friend never got that big placement he was gunning for, he's thankful. The VCs changed the rules on hundreds of dot-coms like his. While the private placements were made with the understanding that it should take four years to achieve profitability, VCs suddenly demanded profits in three. The target date was set back from Q4 2002 to Q4 2001. With the deadline looming and no clear sign of success, several dot-coms folded their tents long before running out of money. Better not get in any more debt if the VCs are going to call the game a year early.

In some cases, the VCs demanded as much plus liquidation. Liquidations are another vulture treat--they include all equipment and similar assets, but what about the data on the servers, especially all the murky intellectual property and customer data? The former often is not owned by the company. The latter is like gold to marketing wonks in search of a sale.

In some cases, VCs have demanded the sale of all valuable data on the liquidated servers. For example, VCs asked Voter.com to sell its community database to the highest bidder. The database consists of names, political views, and ZIP codes of everyone who signed up at the site. As a charter member of TRUSTe,the privacy certification company, Voter.com's action would be in direct violation of its published privacy policies. Not to mention that our political views are arguably what the founding fathers meant by private information when they wrote the Fourth Amendment.

Fortunately, TRUSTe stepped in and forced Voter.com to abide by its privacy policies. Of course, the database would be worth a lot more if they didn't have to put a mandatory opt-out clause into the sale. I feel real sorry for the VCs, having to abide by the law and all.

It's been 10 months since I last saw my friend. As each news day has passed like a refugee train filled with failed dot-com executives, I have wondered if my friend would be on one of those trains, and what would happen to the company he and his partner devoted the prime of their lives to. Of course there's the small matter of my stock, which I have long written off.

Recently my curiosity forced me to e-mail him and ask how he's doing. He called me back right away and informed me that he had to lay everyone off. He and his partner were searching for a buyer or investor and, short of finding either, they would have to liquidate. Even if they did turn it around and hire back, he would be leaving the company. I don't blame him. When you've nearly had your eyes pecked out by vulture capitalists, it's time for a change of scenery.

James Mathewson is editorial director of ComputerUser.