I'll save you a buck:
CMGI births another billion-dollar baby
By Vanessa Richardson
Redherring.com
January 27, 2000
Very few people start their first day at a new job and immediately have free rein to spend a billion dollars. Lior E. Yahalomi is one of those lucky individuals. He started yesterday at @Ventures's Menlo Park office, the same day the firm, CMGI's (Nasdaq: CMGI) VC arm, announced its fifth spending vehicle, the Technology Fund.
[an error occurred while processing this directive]This is the third fund that @Ventures has closed in a year's time, and the second to have a billion dollars in funding (the first, @Ventures's B2B fund, closed in November). As Managing Partner of this new fund, Mr. Yahalomi will have his pick of the technology litter to invest in.
The generic-sounding Technology Fund also underscores how @Ventures is shifting its strategy away from broad-based funds. Its early funds "focused on all areas, and the general partners multi-tasked in all these sectors," said CMGI spokeswoman Krista Thomas. Now, "We're focusing money in different pots with a dedicated professional looking at each industry."
The @Ventures III fund hunts down emerging Internet services and technologies.
CMGI surprised analysts by announcing it would start four VC funds, and take newly acquired Altavista public.
Is CMGI really 30 times more special than every other venture fund out there?
For instance, Mr. Yaholomi was vice president of new ventures for Gateway (NYSE: GTW), where he was responsible for helping the big computer maker add e-commerce into its business model. Last year, he made 11 deals, including the setup of an Internet software store comanaged on both Gateway.net and America Online (NYSE: AOL). Prior to that, he led the mergers and acquisitions team at GE Capital Services (NYSE: GE).
MONEY TO B(2B)URN
The sector that's currently all the rage is business-to-business e-commerce, and @Venture obviously already has a B2B fund, now headed by Charles Finnie, a former analyst for Volpe Brown Whelan.
Because of the breadth of the B2B market, Mr. Yahalomi told Redherring.com that his Technology Fund and Finnie's B2B fund will sometimes work together.
"Yes, there will be some overlap and at times we'll coinvest," says Mr. Yahalomi, "but the significant difference between the two funds is that B2B will focus most on opportunities on the market-maker side." He also stresses that the fund will focus on infrastructure and technology, "no viral marketing."
Where will Mr. Yahalomi focus his investments? He first throws out the broad terms of networking hardware, software, and services. Then he goes on to detail some more specifics: directory services look good, maybe system management software for both corporate networks, and the Internet at large, operating systems that will connect all Internet appliances used by an individual.
SNIFFING FOR ASPs
Finally, he's warmed up. Applications is an eye-catcher. "I like products that can be shared over the network, like ASPs. That's an area neither the B2B or B2C funds have looked at." The new technology of Electronic Customer Relation Management (ECRM) is a significant trend, Mr. Yahalomi says, calling it "the ERP of the Internet."
Mr. Yahalomi envisions small- and mid-sized businesses using ASPs as an alternative to costly software applications from SAP and Oracle.
"Say you bought a computer from Gateway two years ago and it's having a problem. Turns out you need to download new software. In the future, Gateway can just download the software to you via the Web. When someone buys a computer, all the information you provide to Gateway can be captured in a proactive database that creates much more focused marketing and technical support,” he says.
Another area is enhanced video, voice, and data technology. This is the sector where the Technology Fund has started its investing. It joined a second round of funding in DiamondBack Vision, based in Arlington, Virginia, aiming to make state-of-the-art streaming video for Internet use.
Why make this investment? "Yahalomi means "Diamond" in Hebrew -- that was a good enough reason for me to invest," he jokes.
DIAMONDBACK IN THE ROUGH
But seriously, Mr. Yahalomi says the management team was what caught his eye when Novak Biddle Venture Partners brought DiamondBack to @Ventures's attention. The CEO, Dr. Richard Douglass, was tenured at the Defense Advanced Research Projects Agency, the Department of Defense unit credited with originating the Internet, where he worked on computer vision.
"His team is developing a video-compression engine that can reduce bandwidth requirements but can still transform Internet video into a more compelling experience," says Mr. Yahalomi.
Along with Deutsche Bank Alex. Brown and Novak Biddle, @Ventures gave $12 million for a 13 percent ownership stake. Because of CMGI's 60-company keiretsu, DiamondBack Vision can test out its products on new siblings such as iCast, an entertainment site that wants to deliver original and syndicated audio/video, and the AltaVista portal, says Mr. Yahalomi.
That still leaves, oh, roughly $999.9 million left for other investments. Helping him spend is General Partner William Hawkins, formerly the chief technical officer for CMGI and an AOL vice president in charge of the portal's browser and messaging technology. The two plan to spend the money over a three-to-five year timeframe and to look at everything from seedling startups all the way to pre-IPO companies.
@Ventures is planning to build out its staff to specialize in different areas besides IT and upper management, says Ms. Thomas. "We're focusing more on value-added services such as human resources, legal, and marketing."
It seems that CMGI has realized that a billion-dollar fund alone no longer sounds so impressive.
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