Frank, here's another interesting article on SFE and ICGE from the current issue of "The Industry Standard" --- has a very positive article on SFE:
thestandard.com
Safeguard Scientifics is a venerable holding company that missed the first wave of Net investments. It won't miss the second.
By Jim Evans
Warren "Pete" Musser has been making investments longer than a lot of venture capitalists have been alive.
Now 72, Musser started Safeguard Scientifics (SFE) as Lancaster Corp. in 1953 to invest in early-stage entrepreneurs. In 1980, he turned Safeguard into a technology holding company. Soon after, he made the canny decision to back local-area networking pioneer Novell (NOVL).
The explosion of corporate networks in the 1980s made Novell and Safeguard lots of money. But when the Internet took off in 1996, the firm missed out. While Softbank and CMGI backed upstarts like Yahoo (YHOO) and Lycos (LCOS) , Safeguard sat on the sidelines.
Now Safeguard is back with a vengeance. The company has had a couple of big wins (the IPOs of Web holding company Internet Capital Group and Internet consulting firm US Interactive) and ***expects a few more of its portfolio companies to come public by the end of 1999***.
"We've invested in every stage in computing," says Safeguard President and COO Harry Wallaesa. "In the '80s we backed Novell, in the '90s we backed Cambridge Technology Partners. We are determined to invest in the next wave of computing through the Web."
Wallaesa says investment opportunities in the business-to-consumer space have all but dried up. Instead, Safeguard will focus on business-to-business companies, the same turf mapped out by its portfolio company, Internet Capital Group.
ICG (ICGX) was a big winner for Safeguard. In early August, during a tough time for Web IPOs, ICG went public at $12 a share. It's now trading at more than $60 a share, giving the company a market cap of about $7 billion.
Wallaesa says Safeguard has about $2.2 billion under management in eight separate venture funds, seven of which are managed from the company's Wayne, Pa., headquarters. The firm will make another eight to 12 investments this year, he says.
The ICG offering was clearly Safeguard's biggest achievement on the Net to date. Like CMGI, Safeguard's ICG is an incubator for online businesses, although CMGI is more focused on the business-to-consumer market. And CMGI also has an eye-catching portal property, AltaVista, which it uses to drive traffic to its other Web businesses.
"I'd be reluctant to say that ICG is the centerpiece to our investing strategy the way that AltaVista is at the center of CMGI's strategy," Wallaesa says.
In fact, the CMGI comparisons seem to rankle the folks at Safeguard. While CMGI's David Wetherell has become something of a Web celebrity, Safeguard's Musser has received relatively little media attention. The lack of interest "is puzzling to us," Wallaesa says. "We would love for Safeguard to be recognized for what it has done for a long, long time. But because of this Web hype, CMGI is the company being noticed right now."
It seems a little byzantine that a holding company should become an investor in one of its own. In fact, ICG, in its prospectus, points out the conflict of interests the alliance might create. With the close of the IPO, the document notes, Comcast (CMCSK) , Compaq(CPQ) , General Electric and Safeguard will own "10.5 percent, 4.2 percent, 3 percent and 14.9 percent of our common stock, respectively. These shareholders may compete with us to acquire interests in b-to-b e-commerce companies."
At least theoretically, ICG's companies could end up competing with other bets placed by Safeguard. However, Ken Fox, managing director and cofounder of ICG, says relations between the two companies are good.
That's nice, since ICG's East Coast offices are on the Safeguard campus. And, according to Fox, Safeguard was key in getting ICG going in 1996. "When the other cofounder, Walter Buckley, and I left Safeguard we asked Pete if he wanted to be part of what we were doing next." Fox says, "We asked him if he'd invest $5 million and he said no. He said he'd invest $12 million."
Still, ICG will face plenty of competition as the Net feeding frenzy moves to business-to-business e-commerce. And at least one of its competitors will be very close to home.
Teflon |
