A perplexing disconnect from reality haunts the American financial community. Despite the recent ups and downs–mostly downs–of technology issues on the stock market, venture capitalists and investment bankers are still pleading for entrepreneurs and engineers to step forward and qualify for millions of dollars to launch new high-tech enterprises. Dreams and visions are the currency of the hour. Ann Winblad of Hummer Winblad Venture Partners in San Francisco told CBS MarketWatch that “we are funding these companies when they are two people and a hand-puppet show.” The “due diligence” that supposedly keeps second-rate startups from receiving substantial cash flows is sometimes ignored: Venture capitalists have been known to strike deals with new companies mainly to discomfit rival investors. Swathed in marketing hype, marginal technology gets passed off as a vital next step.

Investment banker J. Neil Weintraut of 21st Century Internet Venture Partners notes that “the number of ideas that translate into viable businesses has not kept pace with the amount of capital chasing them.” The result is a clear oversupply of high-risk technology startups. Ambitious individuals are reacting to this situation with predictable impatience and greed. Business-school graduates are skipping opportunities at conventional companies to join technology startups–whether in computer software and hardware, Web-oriented marketing, telecommunications, advanced medical devices, financial services or virtual reality.

Never mind that such startups commonly fail: They still offer stock options that, in best-case scenarios, will mint new instant millionaires; and hope springs eternal in the entrepreneurial breast. Tom Eisenmann, a business professor at Harvard, tells of students who “don’t want to be talking to their grandchildren about how the new economy took off and they were sitting on the sideline.” Older companies are trying to attract the young and restless by mimicking the upstart startups: supplementing salaries with more generous stock options, creating work units with unusual freedom of action and shifting a larger share of their business activities to the Internet. But the billions of dollars that are sloshing around as venture capital make it hard for conventional types to compete. Though some recent initial public offerings of technology stocks have turned out to be duds, the signal success of Linux software packager Red Hat, which tripled in price during its first day of trading on August 11, seemed to reinvigorate the industry overnight.

In 1997-98 companies in the US technology sector absorbed $2.5 billion of the $2.7 billion annual growth in venture capital investments. Faith follows funding, and the mythology spreading across the country and around the world is that computer technology brings revolutionary improvements in business efficiencies, which means a richer world and a better life for all. The new bible of this movement is Bill Gates’s Business @ the Speed of Thought, which teaches that “every bit of data in a company should be in digital form and easily retrieved. This data will include every file, every record, every piece of e-mail, every Web page.” Gates advises businesses to stop using paper altogether, which is a scary concept in itself, given the tendency of computers to crash. His advice also underplays the plain fact that the hyper-use of computers cannot guarantee a smooth transition to a brighter tomorrow–or profits all around.

Even Red Herring magazine, a leading journal that habitually focuses on technology startups with a benign eye, has warned its readers of “weak, pubescent companies” with “untried management teams, thin balance sheets, toxic convertible financing, unknown auditors, whiffy promotion, and hokey products.” According to J. Carlo Cannell, one of the magazine’s more pessimistic columnists, investors who buy Internet equities are “chasing stocks like rabid lemmings on Viagra.” Another Red Herring writer, Mark Williams, has commented on “those aspects of the Internet industry that still, alas, resemble a Ponzi scheme more than a coherent business.”

Too many high-tech stocks are little packets afloat on an ocean of debt. The average startup stands little chance of turning a profit in the foreseeable future, a condition that makes it extremely vulnerable to sudden losses of investor faith. Even established equities like Yahoo! have been known to suffer losses of more than 40 percent on a given day, and the roaring volatility of tech stocks has become the stuff of instant legend. Panic selling follows maniacal buying, sending prices into fabulous slumps before “bargain hunters” return to the market and send valuations soaring again. To take a famous example, the value of a share of Amazon.com stock has fluctuated between 1412 and 2211Ž4 during the past sixty-two weeks. This cycle keeps on churning and churning.

Throwing light on and lending substance to these facts and statistics is Fred Moody’s book, The Visionary Position, a compelling saga of noble ambitions, ingrained wackiness and hard-core iniquity among virtual-reality programmers and entrepreneurs. One of the nation’s most accomplished technology writers, Moody provides columns for abcnews.com and makes frequent contributions to the Seattle Weekly, where he is also managing editor. He previously wrote I Sing the Body Electronic, a study of the creation of multimedia software at Microsoft. Given permission to observe a team developing a cd-rom product called explorapedia, Moody was startled by the degree to which confusion and chaos reign in Redmond’s hallowed halls. The earlier book dramatizes how even the “very smart people” that Microsoft prides itself on hiring do not proceed from victory to victory; rather, they feud and backbite and, after a multitude of false starts, fail their way to success.

If Moody found Microsoft’s corporate culture a mess, he discovered an even wickeder witch’s brew in the world of virtual reality (VR). Though at present this technology is largely confined to flight simulators and entertainment devices, it seems destined to grow into a multibillion-dollar industry with a multitude of applications.

There are many forms and degrees of virtual reality, but they are all marked by advanced apparatuses that use computers to superimpose more information on their users than is naturally available. The superimposed information may be limited to something as simple as time-telling digital numbers that appear to be hovering at arm’s length when the wearer puts on a special pair of spectacles. Or it may involve something as complex as immersion in the artificial three-dimensional world that results when a researcher dons a special full-body suit with a VR headset and begins to “walk” (using a real-world treadmill) across the surface of an illusory planet, stopping now and again to “collect” virtual rocks. On a more mundane level, an architect of the future might show you to a booth where you could experience an immensely convincing illusion of touring the rooms of your freshly designed but not-yet-built new home.

Predictably, VR has inflamed countless imaginations in the arts community as well as more practical minds in the engineering and financial communities. In recent years the entertainment industry has been obsessing on the theme of virtual worlds, with films like The Matrix, eXistenZ and Virtuosity preparing the way for a forthcoming TV series called Harsh Realm by Chris Carter, producer of The X-Files. Hollywood special-effects teams have, of course, run well ahead of virtual-reality technology. Real-world hardware and software engineers are only just now developing the computing power to sustain the illusion of truly immersive virtual environments, and the sort of gargantuan interactive worlds that are fairly easy to depict on the screen may take decades to develop for aspiring VR adventurers, which is why, as Moody notes, VR is often considered “the lunatic fringe of the PC revolution.”

As a technology that has been promising to revolutionize human sensory experience for the better part of a generation now, VR enjoyed an unusual renaissance in the mid-nineties, which “saw the first tentative emergence of VR technology out of the laboratory and into the mainstream marketplace,” as Moody records. Much of this movement took place in Seattle. In The Visionary Position, Moody makes the University of Washington’s Human Interface Technology (HIT) Laboratory his centerpiece. It was a natural choice, since by the time Moody settled in to study the HIT lab in 1996 and 1997, it had become the world’s premier facility for VR research. The person responsible for this achievement was the lab’s founder and director, Dr. Thomas Furness III, the brightest luminary in VR’s short history. Furness spent the early decades of his career in uniform, working on ultrasecret projects in an Air Force lab before separating from the military in 1989 to join the academic community in Seattle.

A man possessed by a mystical sense of the blessings that VR might eventually bequeath to humankind, Furness has a burning vision of how the relationship between man and intelligent machine could be rehumanized by the invention of an entirely different interface than monitor and keyboard. As he put it himself, “We needed to…have the computer create a three-dimensional world with which we could interact using our natural abilities.” VR’s new worlds could be anywhere, or nowhere. Using the type of exotic description native to VR, Furness observes that “we [can] go to another physical place, but we don’t have to be there physically. We can walk along an insect’s eye, or on the surface of a molecule.”

Under Furness the HIT lab would not confine itself to VR research. At least as important, it was and remains in the business of encouraging startups to license its technological breakthroughs. The goal is not only to speed the marketing of valuable new technology but to insure that the HIT lab develops the extra sources of funding that it has sorely needed.

The inevitable cultural clash between Furness’s messianic mindset and entrepreneurial psychology quickly began to throw off dangerous sparks. The business people that the HIT lab attracted were far more impressed by their own visions of tremendous profits than his vision of a new, revolutionary relationship with technology and, indeed, with reality itself. Furness was soon being amazed and outraged on a daily basis by how greedy, shortsighted and downright stupid his moneyed partners could be.

Microvision, one of the first new companies with which HIT signed a deal, quickly produced a painful spectacle. “It was just a mess,” Furness would confess to Moody, “watching this whole company self-destruct before our eyes, with all these fights that were going on.” Just as bad, Microvision’s managers refused to open a lab and begin product development, deciding, as Moody puts it, “simply [to] pass along the fruits of the HIT lab’s research, skimming off money in its role as gatekeeper.” Heedless of Furness’s repeated warnings that they could not expect to prosper without “anything to market,” the new company’s managers eventually tired of trying to garner capital from reluctant venture capitalists and small investors and tried to shoot the moon, making a public offering of stock on the NASDAQ.

As Moody perceptively comments, “at nearly any other time in history it would have seemed an insane notion to believe that a company with no product, no manufacturing plant, and virtually no employees could declare a dollar value for itself, set a price for its stock, and start trading on the market. But the stock market at the time [in the summer of 1996] was breaking every rule that had forever governed investor behavior.” Though Microvision’s IPO succeeded thanks to irrationally exuberant investors, later on its stock would drop to rock-bottom price levels. Eventually new personnel came to Microvision’s rescue, and the value of its stock recently rose above $15 a share.

Two of the unforgettable characters presented in Moody’s narrative were, respectively, the chief technology officer and chief executive officer of a new company that called itself F5 Labs. This startup hoped to improve Internet transmission efficiency to the point that it could eventually send VR applications over the World Wide Web. In Moody’s words, “Almquist [the CTO] was irreverent, mischievous, sloppy, plump, grizzled, and almost suicidally playful. Hussey [the CEO] was thin, intense, tidy, serious to the point of humorlessness, impeccably groomed and coifed, and given to bluster. Almquist looked like a chronically childish adult; Hussey looked like an overserious child who liked to dress up and play at being grown up.” They found funding for their startup with remarkable ease, after only a few presentations before Seattle’s venture capital community. As Moody recounts, “Potential investors looking at F5 Labs were assured, by Almquist’s apparent grasp of technical issues and by Hussey’s CEO-ish look and feel, that the company was technologically onto something and had its business house in order.”

Almquist and Hussey soon became deadly enemies, with the businessman triumphant in the end. Hussey, depicted by Moody as perhaps the most reprehensible wheeler-dealer in the book, saw his total worth on paper shoot to more than $40 million when he took F5 Labs public on June 4 of this year. On the way to this coup he maneuvered Almquist into surrendering all financial interest in any intellectual property that he might ever create. Almquist could take cold comfort in a claim by his lawyer that this injustice would surely be overturned in the courts, especially when told that “it will take years and cost you around four hundred thousand dollars.” Fortunately, Almquist and Hussey were eventually able to reach an out-of-court settlement that has apparently satisfied them both.

The Visionary Position records many instances of unprincipled business people and venture capitalists swindling hardware and software engineers out of fair compensation for the work and talent that keep the high-tech market on the boil. As Moody puts it, “Everywhere I looked, I saw inventors being manipulated out of their stock by people who controlled their access to the money they needed to turn their ideas into something real and profitable.” The very title of the book attests to Moody’s conclusion that the real talent in the technology revolution is, as it were, flat on its back in the missionary position.

Tom Furness became so distressed by the way that the HIT lab’s breakthroughs were being exploited by outsiders that his health, both physical and mental, broke down. Gripped by depression, he “saw himself as someone who burned out researchers, disappointed industrial sponsors, hooked up with dubious characters who blackened his reputation, and birthed or midwifed failed business enterprises at a rate unequaled in the history of industry.” For a time Furness feared that he would have to shut down the HIT lab altogether. Fortunately, he was able to recover his health, renew his self-confidence and keep the lab open, its worst jackals at bay.

During Moody’s final report on his activities, Furness is treating the staff of Boeing’s Museum of Flight in Seattle to a multimedia presentation about “a virtual learning environment for future leaders and explorers of the universe.” A mesmerizing speaker, Furness excels at constructing what is known in the world of high technology as a “reality-distortion field.” By the end of his pitch, the museum staff seems prepared to invest in his vision of a “Starship Center” that would let young people journey on virtual missions into deep space.

Having observed the VR scene for many months and witnessed the agonizing struggles that lay behind its grandiose visions, Moody is unconvinced that the HIT lab has the contacts and resources to build a cutting-edge project like the Starship Center in good time and at a reasonable cost. For his part, the director is at the mercy of his vision: “most frightening of all–Furness actually believed he could pull this off. I realized that the key to his success, his energy, his inability to be kept down for long by disappointment and failure, was an amazing ability to keep seeing the desire as the actual, the vision as the reality.”

In closing his narrative, Moody suggests that we tend to “look at the success of a Bill Gates or an Andrew Grove out of context…. The spectacular success of a pivotal industrialist or businessman is built upon the foundation of thousands of tiny individual victories in battles against the laws of physics, the limitations of materials, and the purblindness of the human imagination.” The beauty of The Visionary Position is to turn the people responsible for these tiny victories into life-size figures of distinctive humanity and courage. Moody’s sublime, tragicomic exposé of skulduggery in the world of high technology becomes a saga of beautiful dreamers and masterful engineers who speed the march of progress despite the predations of their unworthy manipulators.

It is a meaningful coincidence that such struggles to project the shape of tomorrow are taking place in the waning years of the old millennium, which have engendered new anxieties about the safety of a frantically won affluence. But so much more than money is at risk: Our computers and allied devices have turned the coming of the year 2000 into the technological crisis of Y2K. When midnight strikes ushering in next year, we will all be intensely aware that it is not just engineers and investors whose lives are dictated in detail by the juggernaut of technology. Our reality, which has strayed farther and farther from the natural world that gives us life, is already intensely artificial or–to repeat the word whose future is far more secure–virtual.