Michael Dell assumes role of private investor
MSD Capital delivers the money and talent to bootstrap new ideas
By Gary McWilliams
THE WALL STREET JOURNAL
Michael S. Dell has shown he can build a company from
the ground up. The $1,000 he used to start Dell
Computer Corp. in 1984 is worth some $14 billion
today. Now, the 34-year-old computer magnate is
putting some of his profits into other people's dreams.
So far, MSD has invested in at least a dozen companies, including a Virginia
logistics software start-up that Dell Computer chose to supply its own
factories.
LONG A PRIVATE INVESTOR in start-ups, he has
quietly launched MSD Capital LP, a New York investment
company, with resources of $1 billion and a team of
professional managers.
The firm, which began operating in July, vaults Mr. Dell
into the ranks of big-time investors like Warren Buffet and
Microsoft Corp. co-founder Paul Allen, who can deliver the
money and talent to bootstrap new ideas - or buy and sell
companies outright.
Mr. Dell is MSD's sole general partner, or lead investor.
The company's two day-to-day managers are Glenn Fuhrman,
a former managing director at Dell's investment banker,
Goldman, Sachs & Co., and John Phelan, formerly a partner at
the Greenwich, Conn., hedge fund ESL Partners.
'FLOODED WITH PROPOSALS'
In the past, Mr. Dell backed start-ups through funds
created by venture-capital companies like Austin Ventures and
investment banks like Goldman Sachs. But as his wealth and
reputation grew, a spokeswoman says, he was "flooded with
proposals." One recent one: a chance to help bail out
Long-Term Capital Management LP, the troubled hedge fund
recently rescued by a group of Wall Street banks. She says
MSD was created to consolidate Mr. Dell's investments and
will have a "broad charter" to invest. Mr. Dell declined to be
interviewed for this article. So far, MSD has invested in at least a dozen companies,
including a Virginia logistics software start-up that Dell
Computer chose to supply its own factories. "I wouldn't be
surprised to see him do 10 or 12 deals a year," says Todd
Dagres, a general partner at venture capitalist Battery Ventures,
which has invested along with MSD.
Like Microsoft's Bill Gates and Oracle Corp.'s Larry
Ellison, Mr. Dell has used his knack for spotting technology
trends to inform his investing. He has also kept most of his bets
close to his business interests. For instance, his early
investments were with PC hardware suppliers such as Rambus
Inc., a developer of memory chips, and NeoMagic Corp., a
designer of video and sound chips for notebook computers.
More recently, he has bought stakes in business software and
networking concerns, which supply technology that is essential
to Dell's current push into corporate computing.
He has had some big successes. A year ago, he paid $3
million for a one-quarter stake in Austin, Texas, start-up Jato
Technologies Inc., a designer of high-speed network chips.
Last month, Jato agreed to be acquired by Level One
Communications Inc. for $80 million in stock, yielding a profit
of $17 million in little more than a year.
He also hit a home run with his 1995 investment in
Rambus, a designer of PC memory chips. The company,
which counts Dell Computer among its customers, was the
best-performing initial public offering in 1997, with a 281%
gain.
Investing in companies that supply Dell raise the possibility
of a conflict of interest. But Michele K. Moore, the Dell
spokeswoman, says there is none for Mr. Dell. Corporate
policy requires executives to abstain from any procurement
decisions involving companies they hold stakes in, she says,
and Mr. Dell has abided by that. She adds that Mr. Dell's
investments aren't likely to influence his employees because his
stock holdings aren't generally disclosed and a procurement
employee is unlikely to know what they are.
NOT SILENT
Companies that count Mr. Dell as an investor say he isn't
a silent partner, providing advice and references and even
testing products. "He almost always answered an e-mail within
an hour," says Bill Gross, now chief executive of Idealab! in
Pasadena, Calif., and a co-founder of Knowledge Adventure
Inc., an educational software company.
Mr. Dell acquired a stake in Knowledge Adventure in 1992
after meeting Mr. Gross at an industry conference that year.
The company was sold to CUC International Inc. last year for
100 times its 1992 value. Mr. Dell also gave Mr. Gross
contacts at big retailers such as CompUSA Inc. And he
suggested that Knowledge Adventure's JumpStart educational
programs employ animation rather that just video clips because
one of his daughters, then four years old, preferred the
animated characters of a competitor, 7th Level Inc.'s Great
Adventure series.
The founder of Jato, Walter T. Thirion, who has known
Mr. Dell for a decade, calls their relationship "active
communications. If I have a question about something, I can
e-mail him, and he'll answer or have someone on the staff
call," Mr. Thirion says. Indeed, he says he relied on Mr. Dell's
advice as well as that of his board in deciding to sell the
company.
Dell itself hasn't made the plunge into venture
investments. Unlike such companies as Sun Microsystems
Inc., International Business Machines Corp., Microsoft and
Compaq Computer Corp., the Round Rock, Texas, computer
maker has remained on the investing sidelines. The Dell
spokeswoman says there isn't a corporate policy prohibiting
venture investments. But she adds that the company believes it
delivers better shareholder returns by buying its own shares on
the open market than by buying stakes in others.
Copyright © 1998 Dow Jones & Company, Inc.
All Rights Reserved.
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