From the WSJ...apologies if previously posted:
August 26, 1999
Dell Computer's CEO Bets
His Own Cash on the Web
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
With his Dell Computer Corp. already one of the Internet's phenomenal
success stories, Dell Chairman and Chief Executive Michael S. Dell is
increasingly putting his own money into a stream of Internet and
electronic-commerce start-ups.
Mr. Dell's MSD Capital LP, a personal-investment firm formed last year,
has quickly become one of the top investors in e-commerce and Internet
start-ups, prized as much for its namesake's reputation as its fast-growing
portfolio of companies. Backed by an estimated $1 billion of Mr. Dell's
money, MSD Capital is buying stakes in companies aiming to transform
industries as varied as automobiles and consumer marketing into online
businesses, according to a review of public filings and interviews with
venture-capital groups.
Among its hits: Cerent Corp., a tiny
networking-equipment maker that Cisco Systems
Inc. has just agreed to buy for $6.4 billion in
stock.
MSD is "being very opportunistic in going after the
hot deals and hot sectors. Michael Dell's cachet is
successfully getting MSD into these deals," says
Todd Dagres, a venture capitalist whose
Batterymarch Ventures has invested with MSD
Capital.
For instance, MSD has purchased stakes in
e-commerce start-up BeFree Inc., which helps electronic retailers increase
revenue by adapting the store-within-a-store concept to the Web; and
webMethods Inc., which helps businesses build electronic links to
suppliers.
Another key investment: Greenfield Online Inc., whose online consumer
surveys "are changing the whole area of marketing research and business
intelligence," says Jerry Murdock, whose InSight Capital Partners has
invested along with MSD. Greenfield one day may be able to instantly poll
a million online consumers, compared with the more limited telephone and
mail queries now used, Mr. Murdock says.
Dealing With Buyers
Neither Mr. Dell nor Glenn Fuhrman, an MSD partner, agreed to be
interviewed on the company's investments. But Nicholas J. Hanauer, an
early investor in Amazon.com Inc. who has discussed Internet investing
with Mr. Dell, says that "if there is a theme in his investments, it's [buying
into] companies that share his view of how to successfully interact with
consumers." Mr. Dell, he says, "has a unique perspective on what it takes
to transform industries."
Mr. Dell's newest investments also involve
companies that deal directly with buyers -- the
hallmark of his Dell Computer. For instance,
CarsDirect.com, based in Sherman Oaks,
Calif., can deliver a new car directly to a
customer's driveway -- unlike rivals such as
Autobytel.com Inc., which refers buyers to
dealers. MSD also put $5 million into Works.com Inc., an Austin, Texas,
company that sells office supplies wholesale over the Internet. Unlike rivals
such as Staples Inc.'s Staples.com and Office Depot Inc.'s
OfficeDepot.com, it doesn't have storefront operations to support.
Previously, Mr. Dell had made successful bets on a range of chip and
software companies, such as Jato Technologies Inc., Rambus Inc. and
Knowledge Adventure Inc. But since forming MSD Capital last year, his
investments have targeted e-commerce and Internet infrastructure
companies.
That focus has given MSD a leg up in hotly contested deals. Gordon
Hoffstein, chief executive at BeFree, of Marlborough, Mass., says his
company "tried to align ourselves with investors who can take us into their
Kieretsu. We saw Michael Dell as being involved in a lot of infrastructure
plays that can open doors." (Kieretsu is a Japanese term describing a
network of related companies.)
Venture capitalists say Mr. Dell's investments are largely "late-stage"
purchases, meaning they are stakes in more-established companies that are
just shy of making a public offering. The amount invested tends to be
higher than at the early stages, but the risk is lower because the businesses
ideally have a track record.
However, that strategy can backfire when markets cool. One of the fund's
first investments, EXE Technologies Inc., a Dallas developer of
supply-chain software, filed for an initial public offering shortly after MSD
bought a 5.5% stake for $8 million last year. The IPO was canceled in
March, a victim of the downturn in complex business software at
PeopleSoft Inc. and Baan Co.
MSD's other late-stage investments include Cerent Corp. and Top Layer
Networks Inc. Cerent, a highly regarded Petaluma, Calif., networking
company backed by Cisco Systems, filed to go public shortly after MSD
Capital purchased $30 million in convertible debt. Top Layer, of
Westboro, Mass., was formed in 1996 and this past April shipped its first
product, a network switch that can prioritize business data.
Early-Stage Investments
The investment company also has begun to tiptoe into early-stage funds
and leveraged-buyout investments. MSD recently put some $20 million
into an InSight Capital Partners fund that focuses on e-commerce
start-ups. "It's a fund's way of leveraging its assets, to see more deals
without a bigger staff," says Jess E. Reyes, a director at Thomson
Financial's Venture Economics, which tracks venture investments and
measures investment-company returns.
MSD, along with the private investment funds owned by Microsoft Corp.
Chairman Bill Gates and Oracle Corp. CEO Larry Ellison, also put money
into Silver Lake Partners, a high-profile $2 billion Menlo Park, Calif.,
investment fund that is pursuing leveraged buyouts of undervalued
technology companies.
Banking on a turnaround, MSD last month purchased shares valued at $50
million in McKesson HBOC Inc., the nation's largest drug distributor and
supplier to online pharmacies PlanetRX and Soma.com. McKesson
HBOC's shares tumbled earlier this year after it said it had to restate
revenue and earnings related to the acquisition of a computer-software
company.
Michael Dell's Internet Bets
Among Michael Dell's personal Internet-related investments:
E-Commerce Start-Ups
Works.com: $5 million in this online office-products supplier
Greenfield Online: Undisclosed amount in this firm that conducts
online surveys and focus groups
BeFree: About $3 million in this manager of "affiliate" sales
programs that pay Web merchants for their customers' purchases at
other sites
CarsDirect.com: Undisclosed amount in this online car dealer
Investment Funds
Internet Capital Group: 1 million shares valued at $40 million in
this fund that invests in Internet start-ups
InSight Capital Partners: $20 million for a new e-commerce fund
assembled by this group
Silver Lake Partners: Undisclosed amount in this fund, which
targets technology firms for leveraged buyouts
Networking and Software
Cerent: $30 million in this supplier of equipment for routing digital
voice and data on fiber-optic lines
webMethods: Undisclosed amount in this developer of software
for connecting buyers and suppliers via extranets"
EXE Technologies: $8 million in this supply-chain software
developer
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