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An education in tech reunions

The three letters AOL have become for many a shorthand for hubris. At the height of the dotcom boom, the company that got America online bought Time Warner's venerable magazine and movie studio brands for stock. Soon after, it was unravelling in a spectacular clash of cultures.

"In certain respects, this is AOL Time Warner done right," says Miles Gilburne, as the professorial venture capitalist embarks on an animated explanation of ePals, his online education company.

Mr Gilburne should know. After selling a company called NaviSoft to AOL in 1994, he became the group's head of corporate development, leading its acquisitions of CompuServe and Netscape. He sat on the boards of AOL and AOL Time Warner, before stepping down in 2006 after the departure of Steve Case, AOL's founder.

AOL has since been spun off by Time Warner, and few senior members of its founding generation are left. But at ePals, Mr Gilburne has brought many of the old team back together for what has become a test case of how a team can apply the lessons learnt from the rise and fall of an earlier venture.

"Everybody who's sitting at the table understands how to build disruptive start-up companies," Mr Gilburne says. "You need business experience to do what we're trying to do [around] the world, and you need to have people who like each other."

Ed Fish, ePals' president, once ran AOL's subscription services and products such as AOL Instant Messenger. Eduardo Hauser, who leads ePals' media division, started AOL's Latin American operations. Other executives worked in AOL's business affairs unit, led its internet services technology platform, and ran operations for its flagship America Online service.

The fast-changing nature of the technology sector, with its proliferation of start-ups and constant dealmaking, has allowed a number of former business teams to benefit from being reincarnated in a new venture (see below).

"You develop a common frame of reference so you don't have to start fresh every time," explains Carl Bass, the chief executive of software company Autodesk, who has found himself working alongside former teammates from Ithaca Software, which Autodesk bought in 1993.

Sean Knapp, who left Google in 2007 to set up an online video company called Ooyala with two of his colleagues, notes that, with start-ups, "your early investors are backing the team and their ability to navigate a huge amount of adversity and uncertainty".

At ePals, the AOL reunion extends to the company's investor register, which is studded with familiar names. Mr Case and his wife Jean were early backers. Ted Leonsis, once AOL's vice-chairman, William Raduchel, a former AOL chief technology officer, and Yossi Vardi, the Israeli internet entrepreneur who sold ICQ to AOL, are also investors.

"Miles has built a management team and board that understands the disruptive potential that technology can play in an existing market," Mr Case says when asked what the shared AOL experience brings to ePals.

Mr Gilburne also brought in Thomas Middelhoff to chair ePals Europe. The former chief executive of media group Bertelsmann turned an early $50m investment in AOL into a stake worth billions of dollars before the two groups split after the Time Warner deal and Mr Middelhoff fell out with Bertelsmann's controlling family. Mr Middelhoff says the shared history of those involved in ePals "means we have a whole lot of business experience together, a lot of trust and even, at the end, friendship".

EPals describes itself as "the safe social learning network". At its most basic, it is a network for digital penpals; a way to connect a classroom in Washington to one in San Francisco, Moscow or Shanghai. Layered on top of the network that now connects more than 27m students in 700,000 classrooms across 200 countries, however, are content and products aimed at encouraging collaborative learning, rather than just idle chat.

As veterans of AOL's anything-goes message board era, one lesson ePals' founders learnt from the team's previous incarnation was the importance of allaying parental concerns about what might happen on an unscreened forum. As a result, everything is monitored and schools can apply their own policies to the platform – a critical provision for markets such as China, which are suspicious of unchecked online networks.

The new ePals business model is a broader mix of revenue streams than AOL had, bringing in subscriptions, licensing, sponsorship and e-commerce. Customers include the New York City department of education and the International Baccalaureate; sponsors include National Geographic and the Smithsonian; and third party developers can offer their applications over ePals' platform.

The business is a fraction of the size of traditional suppliers to the education market such as McGraw-Hill, Houghton Mifflin Harcourt or Pearson, which owns the Financial Times. Cormark Securities estimates that revenues will grow from under $3m in 2011 to $17.5m in 2013, and ePals has told investors it should pass $100m in sales by 2015.

In contrast to AOL, the ePals team is aiming from the start at a global audience.

It has struck a joint venture in China with Jiren Liu, founder, chairman and chief executive of Neusoft Corporation, a large Chinese technology company with education interests through its IT training institutes. "Before, education was very much country-oriented," he says. "We can localise their platform, their business model and their content."

About 40 per cent of ePals' users are now outside the US.

The AOL veterans involved with ePals see similarities between the two companies. "We were here at the birth of the PC; we were here at the birth of the internet; and now we're watching this reverberation go through media," Mr Leonsis says.

"This is maybe the second time in my life I'm saying this will be something big," adds Mr Middelhoff.

They may yet be proven wrong. As Mr Gilburne notes calmly: "I had to learn about failure early on in business. If you were not failing you were not trying. The nice thing about doing this so many times is we fail not infrequently, and we may fail with this. This is as difficult as anything I've ever done."

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