Steve Lisson Austin TX Stephen N. Lisson Austin Texas
*High tech's bloom has faded for Paul Allen *
/Friday, March 9, 2001/
*By JOHN COOK <mailto:johncook@seattle-pi.com>*
SEATTLE POST-INTELLIGENCER REPORTER
Is Paul Allen -- who made his fortune in technology -- shying away from
his first love?
Recent moves indicate that he is.
During the past 18 months, the Mercer Island billionaire has liquidated
ownership positions in Priceline.com, Egghead.com, Internap, Viewpoint
Corp., Allegiance Telecom and Zany Brainy. He didn't exercise an option
to buy more of online financial news site TheStreet.com. And he pulled
the plug on Bellevue-based Mercata in January. On top of that, Allen
last year sold $8.5 billion worth of Microsoft Corp. -- the software
company he co-founded with high school buddy Bill Gates in 1975.
During the 1990s, Allen and his team at Vulcan Ventures were some of the
most bullish technology investors pumping billions of dollars into more
than 100 Internet, media and communications companies. The investments
ranged from the high-profile and now-defunct Internet film studio
Pop.com to online postage company Stamps.com. All were to be building
blocks in Allen's so-called wired world strategy.
Although Allen has always touted himself as a long-term investor willing
to ride out choppy markets, beginning in late 1999, the world's
third-richest man started aggressively selling. That trend shows no sign
of abating.
Now Allen's trusted money manager, Bill Savoy, says Vulcan's portfolio
of publicly traded tech companies has dwindled to the point where "I
don't have a whole lot left to sell," and the appetite for new
technology investments "is significantly reduced as we go through this
correction." Allen continues to hold significant stakes in cable
companies such as Charter Communications, but tech investing has
declined in recent months.
"I think that the total restructuring of technology is just beginning as
opposed to nearing an end," Savoy says.
Vulcan is acting like many venture capital firms these days: liquidating
shares, slowing down investments and adjusting to what many are calling
"the new paradigm."
Savoy says he is using the downturn in the market "to get our own fiscal
house in order and really understand where the pockets of opportunity
will be for the future."
And what about the "wired world"? Savoy says the strategy is alive and
well and while investments have slowed to a trickle, that is not to say
Paul Allen is no longer a believer in technology.
"The value contribution of technology has not been taken away," says
Savoy. "The price people are willing to pay for it has changed."
Savoy is making the "hard decision" to shut down or refuse to fund
poorly performing businesses.
"It is not the fun part of the job," he says. "But when you have a good
business model where the path to profitability is not clearly
identifiable, in this environment, the right thing to do is put that
opportunity on a shelf and wait for a different environment."
Yet, the mood at Allen-backed companies remains amazingly upbeat.
Mark Vadon, chief executive of online diamond retailer Blue Nile, said
Vulcan "is doing the right thing" as the venture capital firm cuts its
losses and turns off the funding spigot.
"They are seeing which companies have business models that can make it
to profitability," said Vadon, whose Seattle company raised an
undisclosed amount from Paul Allen last April. "If the answer is yes,
they are funding them. If not, they are shutting them down or backing
out." Of course, Vadon believes his company is one that will make it to
profitability before funding dries up.
So does Greg Drew, chief executive of online consumer electronics
retailer 800.com.
After raising more than nine venture capital rounds over a 26-year
career, the Portland entrepreneur knows that venture capitalists will
not always be there in a time of need. But he feels that Vulcan, which
invested in earlier rounds, has always been supportive of the company.
"We are bullish on our ability to raise the next round," he says.
Imandi.com vice president George Meng says he is confident as well.
"They have not indicated anything but their continued support of the
company in line with their investment last June," Meng said.
It is unlikely that all of Vulcan's Internet companies will be able to
raise more money in the future. Some may be able to turn the corner on
their own and receive even more attention from cash-heavy venture funds
like Vulcan. But others could very well fall by the wayside.
That's not bad for Vulcan, according to Stephen Lisson, who follows
the venture capital business as editor and publisher of InsiderVC.com.
"Slowing the investment pace and shutting down companies can only be a
healthy thing," said Lisson. "I wish a lot more traditional venture
capital firms would show a similar discipline."
Technology start-ups have always worn an investment from Paul Allen as a
seal of approval. But the billionaire's involvement has not always meant
success. Value America, Beyond.com, Reel.com, Pop.com, Mercata and
Priceline.com -- all of which were one-time Allen investments -- have
had their problems as of late.
Lisson said this is common for the venture capital business where most
firms get all of their payout through one or two "home runs."
So when The Wall Street Journal reported in December that the average
return for seven of Allen's investments from July 1998 to August 2000
was a loss of 43 percent it didn't really matter. Savoy says the article
was inaccurate anyway, using an initial public offering price as
Vulcan's investment point rather than the pre-IPO price point that he
paid. He did not disclose the fund's performance.
Although the financing environment has changed in recent months, Savoy
says he is dealing with the current climate based on past experience --
treating the bursting of the Internet bubble much like the biotechnology
bust of 1994.
Asked how long this shakeout will last, Savoy simply says: "Much longer."
------------------------------------------------------------------------
/P-I reporter John Cook can be reached at 206-448-8075 or
johncook@seattle-pi.com <mailto:johncook@seattle-pi.com>. For more
information on Seattle-area start-ups or venture capital firms, visit
www.seattlep-i.com/venture. <http://www.seattlep-i.com/venture>/
Steve Lisson Austin TX Stephen N. Lisson Austin Texas
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