Hi Scott! This is a new article about Divine InterVentures. :)Leigh
"He has lined up heavyweight investors, the biggest being Dell Computer, which holds 100 million shares of Divine's preferred stock. Dell (www.dell.com) has placed two of its senior people, CFO Thomas J. Meredith and Dell Ventures head Alex Smith, on the Divine board."
zdnet.com
Financing: Vested Interests
By Laton McCartney, Inter@ctive Week
March 10, 2000 3:58 PM ET
You can say this about Andrew "Flip" Filipowski: He does things in a big way.
Filipowski, you'll remember, sold Platinum Technology, the software company he founded, to Computer Associates International for $3.6 billion in 1999 in what then amounted to the single largest software transaction ever. Now, he's undertaking what may amount to an even more ambitious venture: an Internet holding company, the Chicago-based Divine interVentures, that is engaged in business-to-business (B2B) e-commerce through a network of partner companies.
Divine (www.divineinterventures.com), which Filipowski says already has brought more than 50 companies into its network, hopes to raise roughly $500 million privately and through an impending initial public offering. Divine is far from alone in its quest to bring B2B Internet start-ups into the fold. It will butt heads with a number of well-established companies that are taking a similar tack. Among them: CMGI (www.cmgi.com), which recently set up the $1 billion @Ventures Technology Fund, de voted exclusively to B2B start- ups; and Internet Capital Group (www.internetcapital.com), which recently took a huge stake in eCredit.com.
"The competition for B2B e-commerce companies is definitely heating up," says Ed McCabe, an analyst at Merrill Lynch.
Each of the three competitors structures its operations differently. CMGI's @Ventures fund is a venture capital fund, whereas ICG is an Internet holding company and Divine is an operating company. Their approaches, however, are similar. Each takes long-term equity stakes in e-commerce B2B start-ups, both market makers and infrastructure service providers. Each integrates the start-ups within its network, offering a suite of services and support to jump-start the new businesses. "Speed is essential, Filipowski says. "With e-commerce, you can't spend 20 years building up your company."
Collectively, ICG, CMGI and Divine are having a tremendous impact on the B2B side of e-commerce, which GartnerGroup predicts will grow from $145 billion in 1999 to $7.29 trillion in 2004. The Big Three each have certain strengths and weaknesses. Here's a look at how they stack up.
ICG: Granddad moves fast
Based on a model created by Safeguard Scientifics, a well-established operating company that takes long-term positions in information technology (IT) companies and helps them grow, ICG is the granddaddy of the B2B e-commerce outfits.
"They've been around longer than anyone," says Joseph Garner, director of research at Emerald Research. "The first time I heard the term 'B2B Internet' was at ICG four or five years ago."
"We started ICG in 1995 and began to get traction late that year," says ICG Managing Director Mark Lotke. Today, ICG has more than 50 companies in its network. Sharing best practices, it provides the start-ups with everything from strategic guidance to sales and market support and IT. "The partner companies get IT at Fortune 500 prices," McCabe says. "For start-ups, that represents a real savings."
With more than $1 billion in its war chest, ICG continues to add aggressively to its portfolio. In recent weeks, for example, it announced it would issue $450 million in stock to acquire a big stake in eCredit, which provides credit and financing for e-businesses.
Perhaps, ICG's biggest strength is its management depth. The company has set up its own recruitment boutique under former Heidrick & Struggles partner Rick Dennis. Dennis' group recruits chief executives and chief financial officers as well as vice presidents of sales and marketing, chief information officers and chief technology officers, with 70 percent of the new hires going to ICG's partner companies and the balance into ICG's management ranks. "I've been in Silicon Valley since 1982," Dennis says. "The one thing I've found is that you don't build a great company without great people."
In the past few months alone, ICG has signed on Mary Coleman, former chairman and CEO of Baan, to serve as its managing director of operations in San Francisco; Randy Tinsely, former executive vice president and treasurer at Amazon.com, to act as managing director of acquisitions; and McKinsey & Co. partner Chris Klein, to serve as managing director of financial services.
"The entrepreneurs who go with ICG are benefiting from the experience of people like Mary Coleman, who started Orem, a software company, and then ran Baan, one of the largest software companies in Europe," Merrill Lynch's McCabe says. "That's invaluable."
One concern: In recent weeks, ICG's stock has slumped, perhaps out of fear that the company, with its eCredit investment, is overextending itself financially.
CMGI's latest adventures
Founded in late January, the newest @Ventures fund doesn't operate like many traditional venture capital funds, according to Brad Garlinghouse, an @Ventures general partner. "The venture market is evolving to much more than simply providing cash," he says. "On behalf of our partner companies, we hire, set strategy and provide opportunities for them to test and integrate their services with Internet leaders. If a start-up is simply looking for cash, they should go somewhere else."
CMGI's @Ventures affiliates have a reputation for focusing on the business-to-consumer field, with investments in companies such as Critical Path and Lycos ? but they have also been committed to the B2B side of the business, Garlinghouse says. "Our first three funds have been about 60 percent B2C and 40 percent B2B," he says, noting that the @Ventures Technology Fund is the fourth fund @Ventures started. It also recently set up a fifth fund that backs not only B2C companies, but also hybrids ? businesses dealing with both B2B and B2C.
@Ventures has brought in some senior talent to work with its B2B entrepreneurs. Lior Yahalomi came out of Gateway, where he was vice president of new ventures and spearheaded Gateway's diversification into Internet and e-commerce businesses. In addition, William J. Hawkins joined the fund as general partner serving the East Coast. Hawkins had been vice president of Advanced Technology at America Online.
Right now, @Ventures is concerned primarily with building its portfolio. To date, the @Ventures Technology Fund has invested in only one company, joining a round of venture financing for DiamondBack Vision, which provides multimedia products and services for commercial Internet markets. The fund, however, is actively reviewing investments in other Internet infrastructure opportunities.
Filipowski's Divining rod
As a Chicago native, Filipowski feels the country's midsection has been largely ignored by the major dot com players. To correct this, Divine, based in Lisle, Ill., is providing Midwest-based B2B start-ups and corporate spin-offs with an operating framework that lets them focus on their core business. "We're going where others are not," he says of Divine's strategy, noting that in addition to the breadbasket, the company is looking at investments in Eastern Europe and Calgary, Canada.
Like ICG, Divine is investing in market makers focused on specific industries ? such as plastics company Commerx and auto parts specialist ISalvage.com ? and in infrastructure service providers. "We'll work together in almost a cartel fashion," says the ebullient Filipowski, who has made more than 70 high-tech acquisitions in his entrepreneurial career.
With backing from the city of Chicago, Filipowski is building a $63 million incubator campus on Habit Goose Island. He has lined up heavyweight investors, the biggest being Dell Computer, which holds 100 million shares of Divine's preferred stock. Dell (www.dell.com) has placed two of its senior people, CFO Thomas J. Meredith and Dell Ventures head Alex Smith, on the Divine board.
Other investors include CMGI, which holds more than 20 million Divine shares; Computer Associates; and Microsoft, with 25 million shares of preferred stock.
Divine and Microsoft (www.microsoft.com) have entered into an Alliance Agreement, placing Michael Leitner, Microsoft director of corporate development, on the Divine board. The agreement also calls for Divine to acquire $15 million of Microsoft software and services during the next four years, encourage its partners to use Microsoft solutions and possibly build an Internet incubator in Seattle. "Microsoft may soon be our biggest investor," Filipowski says.
One concern: The Microsoft connection could work against Divine as its tries to attract e-commerce start-ups that are tied to other IT vendors with strong e-business offerings, such as IBM.
Competitive outlook
Right now, there's probably enough business to go around for everyone. As a result, these three potential e-commerce giants are currently making nice toward each other.
CMGI is a major Divine shareholder, and while ICG privately dismisses CMGI as a Johnny-come-lately in the B2B arena, its sees Divine's emergence in the field as a endorsement of its Safeguard Scientifics-like approach. "We love Flip and what he's doing," ICG's Lotke says.
As the quality B2B start-ups these companies are seeking get snapped up, however, and the B2B space becomes increasingly crowded, look for the long knives to emerge. A faction within @Ventures strongly opposed CMGI's investment in potential rival Divine and is watching closely to ensure that Filipowski doesn't extend operations beyond Midwestern boundaries ? something that's almost sure to happen, given the connection with Dell and Microsoft, and Filipowski's sizable ambition. That's when things should get interesting.
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