$90 million fuels high-profile scooter
chicagotribune.com
By Peter Loftus
Dow Jones News Service
Published December 31, 2001
Two prominent venture capital firms and a group of individual investors hope the new Segway "human transporter" takes them places--and they've got $90 million riding on it.
Segway is the high-tech, motorized scooter that was unveiled by inventor Dean Kamen in early December, after several years of secret development under the code name "Ginger." Kamen's company, Segway LLC of Manchester, N.H., calls the two-wheeled device a revolutionary, environmentally friendly transportation alternative.
But promises of revolution don't always translate into high returns for investors. This makes it more intriguing that two top VCs, CSFB Private Equity and Kleiner Perkins Caufield & Byers, would commit large amounts to the project.
Michael Schmertzler, a partner with CSFB who sits on Segway's board, says he's confident that Segway will be successful. But he'll wait patiently for returns on CSFB's investment, unlike so many VCs of the late 1990s who rushed dot-coms into public stock offerings.
"I would prefer to realize the return on this once the product realizes its potential, but that could take a number of years, easily," Schmertzler said.
CSFB Private Equity, a unit of Credit Suisse Group, and Kleiner Perkins, a Silicon Valley firm, each have invested $38 million in Segway. Some 15 individuals, including Xerox Corp. Chairman Paul Allaire, together invested an additional $14 million.
The $90 million total investment ranks among the largest VC deals announced in recent months; the average VC investment during the third quarter was $8.8 million, according to the National Venture Capital Association.
Valuation undisclosed
Segway won't disclose the company's valuation, but says Kamen still owns a significant majority of the company. That implies a valuation of at least $180 million.
Although Segway was just introduced, its financing was wrapped up months ago. Kamen and his partner, Segway Vice Chairman Robert Tuttle, began searching for funding in 1999.
Before hooking up with CSFB, Segway met with five "significant private equity or venture players," all of whom passed on the deal, Tuttle said. At the time, Internet mania was at its peak, and "a lot of VCs basically weren't investing in anything other than the e-commerce, software and telecom fields," Tuttle said.
Finally, in late 1999, an intermediary introduced Segway to Jack Hennessy, then head of CSFB Private Equity and the retired chief executive of Credit Suisse First Boston. Hennessy brought Schmertzler into the mix, and the two sides reached an agreement in principle on the deal structure by March 2000.
Schmertzler liked Segway for several reasons. It addressed a "real market need," it used sophisticated, proprietary technology, and Schmertzler had confidence in Kamen and Tuttle, he said. He also liked Segway's component suppliers, including Delphi Automotive Systems Corp.
The key to Segway is its patented balancing technology, which uses gyroscopes and software to keep the device upright and allow the rider to control it simply by leaning forward or backward. Segway can travel up to 12.5 m.p.h., and uses relatively small amounts of power.
An unusual VC investment
Soon after CSFB began talks with Segway, Kleiner Perkins came on board and eventually became an equal partner with CSFB.
Segway is an unusual investment for both venture capital firms. CSFB had relationships with the auto industry and some Segway suppliers, but Segway isn't a traditional transportation project. The deal is even farther afield for Kleiner Perkins, which is well-known for nurturing Internet and more traditional tech firms.
Even odder was the deal's clandestine nature. Kamen wanted to keep Segway secret to avoid the pressure of rushing a product out to market that wasn't ready. The secrecy made it difficult to line up investors.
"There probably would have been some very good investors there to be in contact with, but we never connected," Tuttle said.
Top-secret testing
Segway was so adamant about secrecy that when Schmertzler's 11-year-old son tested the device last year, he had to sign a confidentiality pact.
The cover was partially blown last January when the Web site Inside.com reported some details about Ginger.
Now Segway is testing its device with companies and other organizations, including the U.S. Postal Service and Amazon.com Inc. Segway plans to make the device available to consumers in late 2002. |
