The Secrets of the World's Richest Man

(See Corrections & Amplifications item below. )

Mexico City

Carlos Slim is Mexico's Mr. Monopoly.

It's hard to spend a day in Mexico and not put money in his pocket. The 67-year-old tycoon controls more than 200 companies -- he says he's "lost count" -- in telecommunications, cigarettes, construction, mining, bicycles, soft-drinks, airlines, hotels, railways, banking and printing. In all, his companies account for more than a third of the total value of Mexico's leading stock market index, while his fortune represents 7% of the country's annual economic output. (At his height, John D. Rockefeller's wealth was equal to 2.5% of U.S. gross domestic product.)

As one Mexico City eatery jokes on its menu: "This restaurant is the only place in Mexico not owned by Carlos Slim."

Mr. Slim's fortune has grown faster than any in the world during the past two years, rising by more than $20 billion to about $60 billion currently. While the market value of his stake in publicly traded companies could decline at any time, at the moment he is probably wealthier than Bill Gates, whom Forbes magazine estimated at $56 billion last March. This would mark the first time that a person from the developing world held the top spot since Forbes started tracking the wealthy outside the U.S. in the 1990s.

"It's not a competition," Mr. Slim said in a recent interview, fiddling with an unlit Cuban cigar in a second-story office decorated with 19th century Mexican landscape paintings. A relatively modest man who wears ties from his own stores, the mogul says he doesn't feel any richer just because he is wealthier on paper.

How did a Mexican son of Lebanese immigrants rise to such heights? By putting together monopolies, much like John D. Rockefeller did when he developed a stranglehold on refining oil in the industrial era. In the post-industrial world, Mr. Slim has a stranglehold on Mexico's telephones. His Teléfonos de México SAB and its cellphone affiliate Telcel have 92% of all fixed-lines and 73% of all cellphones. As Mr. Rockefeller did before him, Mr. Slim has accumulated so much power that he is considered untouchable in his native land, a force as great as the state itself.

The portly Mr. Slim is a study in contradiction. He says he likes competition in business, but blocks it at every turn. He loves talking about technology, but doesn't use a computer and prefers pen and paper. He hosts everyone from Bill Clinton to author Gabriel García Márquez at his Mexico City mansion, but is provincial in many ways, doesn't travel widely, and proudly says he owns no homes outside of Mexico. In a country of soccer fans, he likes baseball. He roots for the sport's richest team, the New York Yankees.

INTERVIEW EXCERPTS

 

¹

"This isn't a competition. Being a businessman isn't about that kind of competition. It's a competition for the marketplace."

-- Carlos Slim, in a discussion with The Wall Street Journal. Read the edited excerpts. ²

Admirers say the hard-charging Mr. Slim, an insomniac who stays up late reading history and has a fondness for reading about Ghengis Khan and his deceptive military strategies, embodies Mexico's potential to become a Latin tiger. His thrift in both his businesses and personal life is a model of restraint in a region where flamboyant Latin American business tycoons build lavish corporate headquarters and fly to Africa on hunting jaunts.

To critics, however, Mr. Slim's rise says a lot about Mexico's deepest problems, including the gap between rich and poor. The latest U.N. rankings place Mexico at 103 out of 126 nations measured in terms of equality. During the past two years, Mr. Slim has made about $27 million a day, while a fifth of the country gets by on less than $2 a day.

"It's like the U.S. and the robber barons in the 1890s. Only Slim is Rockefeller, Carnegie, and J.P. Morgan all rolled up into one person," says David Martínez, a Mexican investor who lives in Manhattan.

Monopolies have long been a feature of Mexico's economy. But in the past, politicians acted as a brake on big business to ensure that the business class didn't threaten their power. But political control faded in the 1990s with the privatization of much of the economy and the slow death of the Institutional Revolutionary Party, which held power for 71 years until 2000.

"It is surprising how big companies have captured the Mexican state. This is a risk to our democracy, and is suffocating our economy," says Eduardo Perez Motta, the country's antitrust chief.

As the face of the new elite, Mr. Slim presents an acute challenge for the country's young president, Felipe Calderón. He must decide whether to try and rein in Mr. Slim despite the mogul's standing as the country's largest private employer and taxpayer. Congress routinely kills legislation that threatens his interests, and his firms account for a chunk of the nation's advertising revenue, making the media reluctant to criticize him.

During the past few months, Mr. Calderón has looked to cut a backdoor deal with Mr. Slim. In a series of face-to face meetings -- the details of which have surfaced for the first time -- the president has tried to convince Mr. Slim to accept greater competition, according to people familiar with the talks. The government holds an important card: Mr. Slim can't offer video on his network -- a big potential market -- without government approval.

But even some within Mr. Calderón's camp privately say the closed-door talks play into Mr. Slim's hands by letting him circumvent the country's regulators, underscoring the weakness of Mexico's democratic institutions. Unless Mr. Calderón extracts big concessions from the mogul, they say, he may become too powerful to control. For his part, Mr. Slim says that his companies are "in constant contact" with regulators, but played down the notion of a secret negotiation.

A talkative man who is generally avuncular but who can easily lose his temper, Mr. Slim rejects the monopolist label. "I like competition. We need more competition," he says, sipping a Diet Coke. He stressed that many of his companies operate in competitive markets, and pointed out that Mexico accounts for only a third of sales at his cellphone company América Móvil SAB, which has clients from San Francisco to Sao Paolo.

Mr. Slim's strategy has been consistent over his long career: Buy companies on the cheap, whip them into shape, and ruthlessly drive competitors out of business. After Mr. Slim got control of Telmex in 1990, he quickly cornered the market for copper cables used by Telmex for telephone wires. He bought one of the two main suppliers and made sure Telmex didn't buy any cable from the other big supplier, eventually prompting the owners to sell the company to him.

His control of Mexico's telephone system has slowed the nation's development. While telephones have long been standard in any American home, only about half of Mexican homes have them. Only 4% of Mexicans have broadband access. Mexican consumers and businesses also pay above-average prices for telephone calls, according to the Organization for Cooperation and Economic Development.

Mr. Slim agrees that many industries in Mexico are dominated by big companies. But he sees no harm as long as they offer good service and prices. "If a beer in Mexico costs 1 peso and in the U.S. it costs 2 pesos, then I don't see the problem," he says.

Despite countless measures over the years that show his companies charge high prices, Mr. Slim steadfastly rejects that notion. During an interview, he orders an aide to fetch his own telephone bills. "See? We charge $14 per month for basic phone rental, cheaper than the U.S.," he says, pulling up a seat next to the reporter. That may be so, but additional fees in Mexico make most phone bills more expensive than in the U.S. Mr. Slim's total phone bill at his own house was a whopping $470 last month. "I have a lot of maids and my sons make calls," he says.

Mr. Slim says his success comes from spotting opportunity early, something he learned in part from reading futurist writer Alvin Toffler, who wrote the best-seller "Future Shock" in the 1970s, and who sends the mogul manuscripts to review. Pulling a dog-eared copy of Mr. Toffler's last book, "Revolutionary Wealth," Mr. Slim leafs through it and shows off his comments in the margins. "Some of his numbers were out of date," he mutters.

Mr. Toffler says he first met Mr. Slim on a trip to Mexico in 1993. Mr. Slim approached him after a speech, surrounded by his family and carrying one of Mr. Toffler's books, heavily underlined. The two have been friends ever since. "If you didn't know he was the richest guy in the world, you'd just think he was a likeable and intelligent guy," says Mr. Toffler.

The fifth of six children, Mr. Slim was born wealthy. His father, Julian Slim, made his fortune on a general store in downtown Mexico City called "The Orient Star." His father died when Mr. Slim was only 13.

Early on, Mr. Slim showed an aptitude for numbers that would help his career. He taught algebra at Mexico's largest public university while finishing his thesis, titled "Applications of Linear Theory in Civil Engineering." His love of numbers also drew him to baseball, a lifelong hobby. "In baseball...numbers talk," he once wrote. Even today, he enjoys discussing baseball, telling a reporter that slugger Barry Bonds should be remembered more for his walk ratio than his home runs.

After college, Mr. Slim and some friends became stockbrokers in the country's fledgling market. Trading by day and playing dominoes by night, the clique became known as "Los Casabolseros," or "The Stock Market Boys." Despite the success, friends say Mr. Slim, less of a party boy and more private than the rest, wanted to run companies rather than trade. "He never liked money as much as the rest of us. He just wanted to be a good businessman," says Enrique Trigueros, one of the casabolseros.

Mr. Slim soon got his chance. After turning around a soft-drink company and a printing firm in the late 1960s and mid 1970s, he made his first big move in 1981, buying a big stake in Mexico's second-biggest tobacco company, Cigatam, maker of Marlboro cigarettes in Mexico. The company generated the cash Mr. Slim needed to go on a buying spree.

A good time to buy came in 1982, a year that would shape Mr. Slim's destiny. That year, the collapsing price of oil threw Mexico into a tailspin. When departing president José López Portillo nationalized Mexico's banks, the traditional business elite feared the country was becoming socialist, and ran for the exits. Companies were selling for as little as 5% of their book value. Mr. Slim picked up dozens of leading firms for bargain-basement prices, a move that paid off when the economy recovered in the following years. He bought Mexico's largest insurer, Seguros de México, for $44 million. Today, the company is worth at least $2.5 billion.

"Countries don't go broke," an unflappable Mr. Slim told friends at the time. Indeed, Mr. Slim always says his inspiration to invest during the downturn came from his father, who bought out his partner in their general store during the worst days of the 1910-1917 Mexican revolution -- a bet that made his father a fortune when the fighting ended.

Mr. Slim still spots good values. From 2002 to 2004, he amassed a 13% stake in bankrupt carrier MCI, later selling it to Verizon Communications Corp. for $1.3 billion. "He has never overpaid for anything," says Hector Aguilar Camín, a historian and friend. While the pair were on holiday in Venice, Mr. Slim once haggled with a store owner for several hours to get a $10 discount on a tie.

Despite his abilities, many here believe his biggest break was the rise to power in 1988 of Carlos Salinas, a Harvard-educated technocrat bent on modernizing the country. The two men had struck up a friendship in the mid-1980s, and Mr. Salinas spoke of Mr. Slim as the country's brightest young businessman. Local wags dubbed the pair "Carlos and Charlies," after a popular local restaurant chain.

Under Mr. Salinas, hundreds of state companies were sold, including Telmex in 1990. Mr. Slim, together with Southwestern Bell and France Telecom, won the bid over one of his closest friends, Roberto Hernandez, who got together with GTE Corp. Mr. Hernandez later suggested the auction was rigged, something both Mr. Slim and Mr. Salinas have long denied. Regardless of whether there was favoritism in the sale of Telmex, the privatization process created a new class of super-rich in Mexico. In 1991, the country had two billionaires on the Forbes list. By 1994, at the end of Mr. Salinas's six-year term, there were 24. The richest of them all was Mr. Slim.

In retrospect, it is easy to see why Messrs. Slim and Hernandez considered Telmex a prize worth losing their friendship. Although countries like Brazil and the U.S. broke up state monopolies into a number of competing firms, Mexico sold its monopoly intact, barring competition during the first six years. And while countries like the U.S. initially barred local "baby bell" carriers from offering long-distance and cellular service in their same area, Telmex got to do all three at once, and across the entire country. Indeed, it won the only nationwide cellular-telephone concession, while rivals had to settle for concessions that were limited to certain regions. When competition was allowed in long distance, foreign carriers were limited to a minority stake in the fixed-line business. Mexico didn't even bother to set up a telephone regulator until three years after the sale.

Dan Crawford was one of those who took on Mr. Slim and lost. In 1995, the California native became chief operating officer of Avantel, a long-distance company partly owned by MCI and the bank of Mr. Hernandez, Mr. Slim's erstwhile friend. Avantel spent around $1 billion building a new network, but it soon ran into trouble trying to connect to Telmex's network -- something it needed to complete calls to and from Telmex clients. Telmex executives simply ignored phone calls or failed to turn up for meetings, Mr. Crawford recalls.

When Telmex did connect the calls nearly a year later, the price was so high that Avantel paid 70 cents of every dollar it made to Mr. Slim's company, according to Mr. Crawford. When Avantel took Telmex to court for monopolistic practices, Telmex responded by asking a judge to issue an arrest warrant for Avantel's top lawyer in Mexico, Luis Mancera, on trumped up charges, Mr. Crawford says. Mr. Slim confirms the story, but says a Telmex lawyer acted rashly, and that the judicial proceeding was dropped. Mr. Mancera declined to comment.

"Slim is very aggressive," says Mr. Crawford, who recently retired from MCI. Avantel eventually defaulted on its debts in 2001, much of which were scooped up by Mr. Slim and later sold for a profit. Avantel was sold recently to another Mexican firm for $485 million -- a fraction of what it invested in Mexico.

For his part, Mr. Slim says Avantel and others mistakenly focused on the long-distance market, which was in decline, rather than wireless, which was growing.

It hasn't been much easier taking on Mr. Slim in the wireless market either. In 2004, Spain's Telefónica SA began selling handsets at a loss here to build market share. But it soon realized that tens of thousands of phones were purchased but never used. According to a case currently at Mexico's antitrust agency, Telefónica says that Telcel distributors bought the phones to keep them off the market, in some cases swapping the phone's existing chip with their own and reselling the handset.

When asked about this practice, Mr. Slim says "It could be. That happens to all of us. If you sell something for $50 or $20 that costs $100, someone's going to buy it." His spokesman and son-in-law, Arturo Elías, says the distributors acted without Telcel's knowledge.

Attempts to regulate Mr. Slim's companies have largely failed over the years. Mexico's telephone regulator, Cofetel, was so weak in the 1990s that Telmex's rivals dubbed it "Cofetelmex." When the regulator did try to act, Mr. Slim's lawyers blocked it in the country's Byzantine courts.

The Telmex chief also had friends in high places. Vicente Fox, Mexico's first opposition president when he won in 2000, tapped a former Telmex employee, Pedro Cerisola, to be his minister of communications and transport. During his tenure, Mr. Cerisola rarely moved against Telmex, say executives from rival telephone companies. Mr. Cerisola declined to comment.

Using money from his telephone empire, Mr. Slim has expanded into Latin American markets as well as new industries in Mexico. His cellphone company América Móvil has 124 million customers and operates in more than a dozen Latin American nations. In Mexico, he has focused on industries that depend on government contracts. His new construction company, Ideal SAB, is currently bidding to run some of Mexico's biggest highways. His new oil-services company recently built the country's biggest oil platform.

Some of Mexico's business leaders say in private that they feel Mr. Slim has grown too greedy. The death of his wife, Soumaya, from kidney disease in 1999 left him without an anchor, says Mr. Trigueros, Mr. Slim's friend from his stockbroker days. "She was a special woman, the kind who keeps a guy in line. Nowadays, he only has business to think about," he says.

Mr. Slim's empire is so vast here now that doing business without him can be difficult. Two years ago, Hutchison Port Holdings and U.S. railroad Union Pacific teamed up to bid on a $6 billion port and railway in Baja California to compete with Long Beach port. But Mr. Slim felt the project had been arranged behind closed doors and was against the idea of the country's biggest project going to foreigners. He made his feelings known to the Baja California governor and the project was stalled. Mr. Slim has since worked to put together a rival consortium, which includes Mexican rail company Grupo Mexico and U.S. railroad Burlington-Northern. He says his potential bid is a better option for the country because the railroad will run along Mexico's north and help spur development. Union Pacific and Hutchison both declined to comment.

Mr. Slim has recently given more money to philanthropy, but he has often said his most important legacy is his family. In 2000, a few years after heart surgery, he put his sons and sons-in-law in charge of his businesses. He also started a group called "Fathers and Sons" that invites Latin American billionaires and their heirs for annual meetings, where they sip fine wines and attend seminars like "How to Run a Family Business."

There is no obvious successor to the patriarch's empire. That gives some Mexican officials hope that one day the state can regulate his companies. Says one high-ranking official: "When Slim dies, we can finally regulate his kids."

Write to David Luhnow at david.luhnow@wsj.com ³

Corrections & Amplifications:

About half of Mexican homes have telephone lines, according to the World Bank. This article about Mexican telecom magnate Carlos Slim incorrectly said only 20% of Mexican homes have phone lines.

Nest Egg
Seven Myths About College Finances

We can't afford the tuition -- and we're not poor enough to qualify for financial aid.

I'll have to refinance my house.

There goes my retirement money.

These are just a few of the depressing assumptions that come to mind when parents consider how to pay for college. And with good reason, as tuition continues to rise faster than the rate of inflation. This past school year, average total tuition and fees at private colleges rose to $22,218 -- 5.9% more than the previous year. Add room and board, and that cost climbs to $30,367.

Often, families resort to these assumptions because the system for financing a college education is too complicated to get their arms around. Education Secretary Margaret Spellings, speaking before a House education panel in May, said the federal student-aid system she oversees "is redundant, it's Byzantine and it's broken."

Consider, for instance, that there are two different systems of federal student-loan distribution, and whether you use banks for these loans or borrow directly from the federal government depends entirely on what college you attend. Then there are the confusing pros and cons associated with the different tax-advantaged college-savings vehicles -- Roth IRAs, 529 plans and Coverdell Education Savings Accounts.

Add to that the varied ways your finances will be considered, from the Education Department's assessment for federal financial-aid purposes to some schools' use of their own formula to figure out how to parcel out their own aid.

And now, can you even trust your college's financial-aid office anymore? A nationwide probe by New York Attorney General Andrew Cuomo has led more than two dozen schools to settle claims of deceptive trade practices involving alleged undisclosed payments to financial-aid officers from lenders they recommended to students.

The unfortunate result of all this is that many families don't even bother trying to find their way through the maze. Instead, they make their assumptions. And those assumptions are often wrong.

Here we deconstruct some of the most common myths.

Many families think that "aid" means only money that doesn't have to be paid back -- and that they won't qualify for, based on need. But while scholarships and grants certainly are the best form of financial aid, aid can also come in the form of federal loans that carry favorable interest rates and that can be available regardless of need.

The most common student loan is the Stafford loan. The unsubsidized variety of these loans doesn't require the student to demonstrate need. But they are available only to those who have filled out the so-called Fafsa form, the Free Application for Federal Student Aid, which is something many middle- and upper-income families don't bother to do.

The interest rate on Stafford loans is currently set at a maximum of 6.8%. By comparison, the rate on loans from private lenders isn't capped and currently averages around 10% at some of the biggest lenders. For a $20,000 loan, that's a difference of about $4,100 over the typical 10-year life of a loan.

Federal student loans also carry more-flexible repayment terms than loans from private lenders. For instance, a borrower who is unemployed or facing economic hardship can request a deferment, which allows the borrower to postpone repaying the loan.

START SAVING EARLY

 

LISTEN TO A PODCAST: ¹ Hear how families can better prepare for financing college. Mark Kantrowitz, publisher of FinAid.org, tells WSJ's Anne Marie Chaker why it's important to start saving early. He says families are wrong to think they'll get more aid if they don't save.
Listen Now ² | iTunes Archive ³ | RSS Feed ⁴ | More Info ⁵

THE JOURNAL REPORT

 

⁶

Essay: Too often, we hire the person ⁷ with the lowest price, or the most charisma. Then we get hustled. Plus, fearing financial illiteracy among kids ⁸ , states are requiring students to learn about money matters.

•  See the complete Your Money Matters ⁹ report.

For certain loan programs, the interest still accrues and the borrower is eventually responsible for paying it; for others, the government pays the interest during the deferment.

There are even loan-forgiveness programs available for borrowers who take some teaching jobs or who enter public service. The federal teacher loan-forgiveness program allows certain math, science and special-education teachers in low-income schools to qualify for up to $17,500 toward the repayment of their student loans. In addition, many states offer loan-forgiveness programs for their resident teachers. The American Federation of Teachers maintains a list of state-by-state offerings at aft.org/teachers/jft/loanforgiveness.htm ¹⁰ . Certain public-service organizations offer their own loan-forgiveness programs, such as AmeriCorps, which will grant volunteers with at least one year of service as much as $4,725 toward loan repayments or future tuition.

One drawback of federal student loans is that there are limits on how much can be borrowed this way. But Congress recently moved to raise the cap for some students. Effective this month, the annual limits on Stafford loans for dependent freshmen and sophomores are $3,500 and $4,500, respectively, up from $2,625 and $3,500. Juniors and seniors can borrow up to $5,500 a year.

If student loans aren't enough to cover expenses, parents of undergraduates are also entitled to federal loans: The PLUS loan has the benefit of not carrying any set borrowing limits -- though the total can't exceed the cost of attendance minus other forms of aid -- and the interest rate is set at a maximum of 8.5%. Just remember it's the parent, not the student, on the hook for repayment.

Myth No. 2: The value of my retirement funds and my home will prevent me from getting need-based aid.

Under the federal calculus for distributing aid, retirement plans are completely excluded. So is the home you live in. On top of that, the federal government shelters a certain amount of general parent savings, for retirement purposes. This "asset protection allowance" varies based on age, but for a typical parent of a college-age child, the figure is around $45,000 to $50,000.

Many private colleges use a separate form to determine how much of their own aid to distribute. It also excludes retirement assets, but it does ask for the net home equity of the family's primary residence, capping it at two to three times annual income.

Myth No. 3: I should choose a lender from the list of "preferred" lending companies recommended by my college financial-aid office.

Because of the complexity of the whole aid process, many people trust their college's financial-aid office to provide them with information on loans and point them to the best deals. But the New York attorney general's probe and investigations by members of Congress suggest that lenders haven't always been recommended by financial-aid officers based entirely on students' interests. So you may want to do at least some shopping for loans on your own.

Lenders compete with one another largely by offering "borrower benefits" that lower the costs of their loans. But borrowers should be skeptical of some of these discounts, which can be easy to lose if a student misses a payment.

Citigroup Inc.'s Citibank offers a discount of one percentage point on the interest rate of a Stafford loan -- but a student who misses a scheduled payment loses the discount and has to make 24 consecutive payments on time in order to regain it. Nelnet Inc. offers a 3.33% reduction on the original principal balance -- if the first 30 payments are made on time. Once the discount is lost, it cannot be regained.

Some deals are more forgiving. Northstar Education Finance Inc., of St. Paul, Minn., offers a month-by-month credit on its student loans that can amount to an annual rate reduction of up to 1.3 percentage points. Students lose the credit only if they fall 60 days past due on a payment. Once the borrower is caught up again on payments, the benefit resumes.

MyRichUncle, a New York lender, cuts one percentage point off the interest rate on its Stafford loan from the start of repayment but charges an origination fee, totaling 1.5% of the original principal balance, that other lenders might waive.

Because the discounting formulas vary markedly from one company to the next, it can be extremely difficult to calculate the best deal. Mark Kantrowitz, publisher of FinAid.org, a free guide to financial aid, has come up with a calculator on his Web site that allows consumers to punch in various criteria to compare discounts from the different companies.

Myth No. 4: I'm doomed: I'll have two kids in college at the same time.

The federal assessment of aid eligibility is based on an "expected family contribution" -- the amount of money that parents are expected to shell out, based on their financial picture. That expected outlay stays the same no matter how many kids you have in college at the same time. So if you have two or more kids attending college, your expected contribution is split among them.

The upshot: You are likely to qualify for more aid when you have multiple children in college at once.

Myth No. 5: The federal aid process is bound by a strict formula, and it's virtually impossible to eke any special consideration out of college administrators.

While it's true that everyone applying for federal aid must answer the same questions on the Fafsa, there may be special circumstances worth alerting the college financial-aid office to.

The Higher Education Act, which authorizes federal aid programs, gives college aid officers the authority to make adjustments when they feel it's warranted. If you have a solid case, backed up by documentation, it's definitely worth requesting a "Professional Judgment Review" in a letter addressed to the financial-aid officer and supported by documentation.

For example, if your income looks artificially high in the year that's being evaluated, explain why (perhaps it was due to an atypical bonus) and provide previous tax returns to show what it's normally like. Other instances not covered by the Fafsa and worth alerting the financial-aid office to: high medical costs, a death, private-school tuition for kids not yet in college, divorce, job loss, a big decrease in family income.

Amherst College financial-aid director Joe Paul Case recalls adjusting one aid package as the student's family reeled from the impact of the father's work-related accident, which occurred in the student's sophomore year. The accident left the father out of work for six months. By reassessing the family's finances, Mr. Case says, the school was able to bolster his financial aid through both federal sources and institutional grant money.

New York-based financial-aid consultant Kalman A. Chany had one client this year with household income over $225,000 receiving need-based aid, in part due to high medical costs and an atypical bonus that distorted the client's income stream.

Myth No. 6: Not to worry. Our brilliant/talented/athletic child will get plenty of privately funded scholarships, maybe even a free ride.

Some 87% of parents are counting on their children receiving scholarship or grant money, according to a survey by Mathew Greenwald & Associates Inc. for investment-management firm AllianceBernstein LP. The firm polled 1,358 parents last summer, as well as more than 200 college financial-aid administrators. The responses from financial-aid officers told a remarkably different story: 92% of them believed that parents overestimate the amount of scholarship and grant money their children will receive.

That is not to say you shouldn't search. In fact, there are several scholarship search services available free online. Sites like FastWeb (fastweb.com ¹¹ ) or the College Board's scholarship search service (collegeboard.com ¹² ) match student profiles to scholarship opportunities.

Myth No. 7: The 529 college-savings plan offered by my state is bound to be the best for me.

Many people's search for a 529 plan stops with their own state's offering. But with all 50 states and Washington, D.C., now offering these college-savings plans, consumers should shop around.

Some states offer their own tax breaks on these plans for state residents, so it is smart to take a good look at your own state plan. But you should also take a hard look at the fees. Most experts say you should pay no more than 1.5% of assets in fees and other expenses. High-fee plans can easily cancel out any tax breaks that come with investing in your own state plan.

Morningstar Inc., the Chicago-based financial-information firm, rates the following state plans among the best because of their low fees and the performance of their investments: the Utah Educational Savings Plan, the Maryland College Investment Plan and the College Savings Plan of Nebraska. And you can invest in any one of these three directly, without the help of a broker.

--Ms. Chaker is a staff reporter in The Wall Street Journal's Washington bureau.

Write to Anne Marie Chaker at anne-marie.chaker@wsj.com ¹³

Web Site Puts the 'Vent' Into Venture Capital

Howard Hartenbaum, a partner at San Francisco venture-capital firm Draper Richards LP, was recently taken aback when an entrepreneur anonymously called him "rude and arrogant" on a Web site. The entrepreneur said Mr. Hartenbaum's constant and boastful references in a meeting to a previous investment, Internet-phone company Skype, "made me want to vomit."

Mr. Hartenbaum was so upset with the characterizations on TheFunded.com ¹ , a new Web site that rates venture capitalists, that he asked more than 30 entrepreneurs he knew to post comments in response.

Visitors to TheFunded now see gushing messages about Mr. Hartenbaum's intellect and generosity, including write-ups titled "Howard's the man!" and "Howard gets startups!" Mr. Hartenbaum -- who stresses he only asked entrepreneurs for honest feedback, and not necessarily positive comments -- says the site also has prompted him to change the way he gives critical feedback at meetings. He has begun asking fledgling chief executives if they want "direct" comments about the flaws in a business instead of giving a harsh assessment whether they like it or not.

"I thought I was a nice guy," says Mr. Hartenbaum, 41 years old. "Nobody likes to be thought of as an a--."

For years, entrepreneurs in Silicon Valley have been at the mercy of venture capitalists, the high-powered financiers who hold the purse strings when it comes to investing in start-ups. They can put entrepreneurs through grueling paces before giving them money -- then make more demands once they've funded a company and are sitting on its board.

But these days, with billions of dollars flowing into venture funds and tech advances making it cheaper to start companies, the tables are turning. Many company founders, of course, accept the first venture-fund offer they are tendered, and feel lucky to get it. But some entrepreneurs say they don't need venture capitalists at all. Others, particularly well-known entrepreneurs and those with companies in hot investment sectors, are using their newfound clout to play financiers off each other, picking and choosing the ones who give them the best terms for hot deals.

With TheFunded, "entrepreneurs finally get to strike back," says Pete Sinclair, a partner at Leapfrog Ventures, a Menlo Park, Calif., firm now ranked as the second-best venture firm on the site, ahead of venerable outfits like Sequoia Capital and Kleiner Perkins Caufield & Byers. TheFunded lets entrepreneurs rate venture firms according to five different criteria (track record, operating competence, pitching efficiency, favorable deal terms and execution assistance) and also write reviews of firms and their individual partners. Posters can choose to be anonymous.

Only current and former founders and CEOs of companies, and a handful of senior managers, can join the site, and membership is screened. The site, which is free for current founders and CEOs but costs others $250 a year, currently has more than 1,500 members.

TheFunded has become the talk of Silicon Valley. On Sand Hill Road in Menlo Park, where many venture capitalists have offices, some investors at their traditional Monday partner meetings gossip about their online ratings on the site and those of others. Firms like Sequoia have submitted "certified profiles" with basic, official information on their companies for TheFunded to put on the site. Emily Mendell, the head of strategic affairs for the National Venture Capital Association, the industry's main trade group, says she has fielded calls from anxious firms asking how to respond to comments.

"I assume that every entrepreneur I meet has read TheFunded," says David Stern, a venture partner at Clearstone Venture Partners in Menlo Park. Though Mr. Stern is described on the site as a "good guy" who understands Internet advertising, Clearstone ranked just 3.5 out of a possible five points on TheFunded's ratings system. Mr. Stern says he's irked that disgruntled entrepreneurs often post their comments anonymously. "There's no accountability," he complains.

TheFunded was launched in March by an entrepreneur who says he operates a venture-backed start-up. The entrepreneur, who declined to be named, said in an interview that his company, which isn't connected to the site, is in the process of being acquired by another firm and that he doesn't want to do anything to jeopardize the deal.

Still, venture capitalists can't ignore the site, as it carries weight with entrepreneurs. Jason Calacanis, one entrepreneur who just launched an Internet-search company called Mahalo.com Inc., says he checked out potential investors on TheFunded before looking for funding. The reviews of investors were "disturbingly on target," he says.

One venture firm where Mr. Calacanis had scheduled a meeting to discuss Mahalo canceled two hours before the appointment, he says. Later, "when I looked at their profile [on TheFunded], other folks had commented on their flaky behavior," he says. That firm, which he declined to name, didn't get a chance to invest in his start-up.

Airing all this dirty laundry seems positively déclassé for an industry used to trafficking in big ideas, managing money for Ivy League universities and cutting deals on the golf course. Other industries are finding similar sites popping up. A Web site that ranks lawyers called Avvo.com ² -- and backed by venture capitalists -- launched in June. A lawyer who claimed the comments on the site were misleading and inaccurate promptly sued.

In this age of blogs and constant Internet communication, "you'll have [online ratings] for the VCs, for lawyers, every profession," says Nicolas El Baze, a partner with venture firm Partech International in San Francisco. He calls TheFunded "amateurish," saying most comments on the site are either scathing or glowingly positive. (Partech drew a middling rating of 2.7 on the site, with one poster praising Mr. El Baze but another lamenting some partners at the firm who "can waste a lot of your time." Partech says the firm strives for "phenomenal" service to entrepreneurs.) Other venture investors note that negative comments are bound to crop up on the site because their industry rejects the vast majority of business plans sent their way.

Despite the grousing, some venture capitalists are now trying to spruce up their images on the site. "Public" comments on TheFunded are visible to anyone, but more-candid comments labeled "private" can be seen only by registered members. Last month, the site started allowing venture investors to write responses to the public comments on the site, though they still can't see the private ones.

Venture capital "is a services business, and our customer is the entrepreneur," says Mark Dempster, Sequoia Capital's marketing partner. "It's easy for us to forget that." Mr. Dempster, who gets a daily email feed from TheFunded, says Sequoia hasn't asked its entrepreneurs to rate the firm on the site. "But I think that's a great idea," he says.

For some entrepreneurs, any information on the secretive venture world is helpful. Venture capitalists "all have their real clubby network . . . but start-ups go into these meetings blind," says Stephen Bell, founder of Austin, Texas, online video-shopping site Shangby Inc. "TheFunded is the first step in kind of leveling that playing field."

Mr. Bell raised money from Draper Richards earlier this year and got an email from Mr. Hartenbaum after their meeting asking him to visit TheFunded and rate the firm. Mr. Bell complied. His lengthy review, written after Draper Richards had invested in his start-up, praised Mr. Hartenbaum and partner Bill Draper for asking "great on-point questions," and said Shangby was "super-excited to have them involved."

Write to Rebecca Buckman at rebecca.buckman@wsj.com ³