Philadelphia Business Leaders Still Optimistic about Some Types of Tech Firms
Apr. 24 (Philadelphia Daily News/KRTBN)--His company just lost about 85 percent of its market value in less than four months, but Bluestone Software CEO Kevin Kilroy didn't look worried last week as he spoke to a group of Philadelphia-area venture capitalists and high-tech execs.
And the roughly $700 million drop in the value of his company's investment in Bluestone didn't seem to faze Gregory Case, managing director of Patricof & Co., the King of Prussia venture capital firm that owns a 10 percent stake.
Indeed, it was almost as if the high-tech carnage on Wall Street this month had never taken place, as Kilroy wowed about 40 business leaders with his predictions of a futuristic world of smart houses, Internet-wired refrigerators and even electronic tracking of his pet cat, Fluffy.
"We've actually gone through this e-transformation - we have a major dependency today on technology," said Kilroy, a former Silicon Valley player who took the helm of the Mount Laurel, N.J. high-tech firm two years ago.
"It's similar to the Industrial Revolution and the steam engine, except the steam engine was in the hands of large, monolithic companies, while the Internet is everywhere."
Why the sunny optimism when so many investors - not to mention job seekers - are rethinking the Web-crazy days of 1999?
Because the Internet boom hasn't peaked yet, and wireless communications will make everything from Palm Pilots to Web-linked vending machines to satellite vehicle tracking ubiquitous by the decade's end.
The shakeout that investors saw recently on Wall Street is also inevitable, as some early players in the high-tech revolution - especially on-line retailers selling low-profit-margin items like books or groceries - fall by the wayside.
Instead, the companies that venture capitalists are eyeballing right now are ones like Bluestone: High-margin companies that don't sell consumer products but sell software, consulting, or equipment for the infrastructure of the World Wide Web.
"No matter what his stock price does, he's still going to grow at 200 percent a year," said Kenneth Jones, general partner in Radnor-based Meridian Venture Partners. Like other large investors, Jones says individuals must learn to
ignore large day-to-day swings on Wall Street.
Indeed, even the change in strategy at Safeguard Scientifics, the Wayne company that's considered a worldwide leader in nurturing and investing in new high-tech
companies, could aid companies like Bluestone.
Safeguard shifted from business-to-business, or B-to-B, Internet firms in favor of infrastructure plays. Three-year-old spinoff Bluestone sells so-called
"application servers," software that is helping Fortune 500 companies take their businesses onto the Internet.
Beginning with a popular line of Sapphire/Web CDs for business clients, the company has swelled to 250 employees and recently rolled out a new product line, Total-e-Business.
At the same time, the fast-growing firm expanded into Europe and announced last week that its revenues for the first quarter of 2000 - some $7.3 million - were up 122 percent from a year before. Bluestone Software lost $4.8 million for the quarter.
But the company, which saw its stock surge from $25 a share last fall when it went public to a high of $155, has been pummeled by investors in recent weeks, along with most of the rest of the high-technology sector. Last Thursday it was
trading at $22 a share, despite its upbeat revenue growth.
Indeed, Kilroy and Case sold a number of their shares at $88 in February, at the time that the firm raised money with a secondary stock offering. Case netted more than $60 million in cash, records show, while Kilroy reaped $16 million.
Nevertheless, investment professionals who attended last week's Conshohocken breakfast of the Association for Corporate Growth - whose members specialize in mergers and acquisitions - were upbeat about the long term prospects of
Bluestone and companies like it, ones with cash in the bank, growing revenue and good sales margins.
"Technology companies like Bluestone should do well because technology companie have high margins, and demand for this stuff is only growing, not shrinking" said Patricof's Case. "The companies that are at risk are companies where it's
not clear that the products they're providing on-line are going to sustain themselves."
If "the typical grocery store is making a 2 percent margin, how the hell is a company like Peapod - the on-line grocer - going to get products sold and survive?" Case said.
Indeed, the companies that have recently caused investors the most concern are on-line retailers that sell vitamins, flowers, or music like Fort Washington-based CDNow, which is said to have just three months of available cash left. |
