Paul Allen's Vulcan Ventures Fund Is Bearish on Tech (Correct)
Bellevue, Washington, Oct. 20 (Bloomberg) -- Bill Savoy, who runs the fund created by Microsoft Corp. co-founder Paul G. Allen to invest in a panoply of innovative technology companies, now says technology stocks are overvalued.
After three years of gains, a ``bubble'' has emerged in U.S. stocks as investors bid up shares of companies, particularly technology firms, above their true worth, said Savoy, 36, who manages more than $14 billion in Allen's Vulcan Ventures Inc.
``We had an unsustainable set of factors that caused the bubble to take place in the first place,'' Savoy said in an interview. ``The bubble manifested itself in the highest growth companies in the market, and it turned out that most of the high- growth opportunities were tech-centric.''
Vulcan Ventures, which has invested billions in computer hardware, software, Internet content and communications infrastructure companies, has sold its stake in dozens of investments, and has reduced the pace of new investments, Savoy said. He predicts the decline in technology shares will continue, with companies in the wireless communications, optical networking and business-to-business software sectors falling.
``We are, in my opinion, not anywhere near the bottom yet in that cycle,'' Savoy said. ``I don't think you can move from extreme overvalue to fair value; I think you have to go to (being) undervalued first.''
Selling and Buying
Savoy wouldn't say which companies his fund has bought or sold, though records of Vulcan's sales have been filed with the Securities and Exchange Commission. Vulcan Ventures does not release records of its returns or the size of its investments.
Vulcan Ventures in the past two months has filed to sell almost 5.6 million shares of InterNAP Network Services Corp., a company that helps businesses transmit data over the Internet, including a filing yesterday to sell 2.14 million shares, according to regulatory filings. Vulcan Ventures owned about 9.47 million shares in February, according to the filings.
InterNAP shares are down 78 percent this year.
Vulcan Ventures for the past 10 years has been investing billions of Allen's fortune in companies that are developing hardware, software and content to bring information to consumers through the computer, cell phone, television and other devices.
Allen is also chairman of Charter Communications Inc., which operates cable systems in the U.S., and Vulcan Ventures owns nearly 30 percent of Metricom Inc., which designs wireless communications networks.
Vulcan Ventures continues to invest in some technology companies, including a $190 million investment with AT&T Corp.'s Liberty Media Group in Priceline.com, a company that lets consumers name their price on goods and services over the Internet. Priceline shares are down 89 percent this year.
Vulcan Ventures filed in February to sell 1.15 million shares of Beyond.com, which sells software over the Internet, according to the Washington Service, which tracks insider stock sales. Before the sale, Allen was the second-largest shareholder in Beyond.com, with almost 8 percent of outstanding shares. Those shares are down 89 percent this year.
Vulcan Ventures also filed in May to sell more than 683,000 shares of Liquid Audio Inc., which allows music to be delivered over the Internet, according to the Washington Service. Those shares are down 82 percent this year.
Vulcan Ventures originally paid $3.99 million for 999,803 shares, which works out to about $3.99 a share, according to documents filed with the SEC.
Several of Vulcan's investments have gone out of business, including Value America Inc., an Internet retailer that filed for bankruptcy in August, and Pop.com, an Internet entertainment company that planned to produce original programming that would be delivered over the Internet.
Continued Decline
Savoy said that U.S. stock markets rose faster than they should have because for the past three years events have kept the U.S. Federal Reserve from raising interest rates.
First, it was the economic crisis that roiled Asia in 1997, which prevented inflation from rising in the U.S. Then it was the failure of hedge fund Long Term Capital Management LLC that led the Fed to keep from raising rates. The third event was the increased spending by companies on computer systems and software to prevent the Year 2000 computer glitch, Savoy said.
``In last three years, there's been three specific events that have taken place in the fall that have caused the Fed to increase the amount of liquidity,'' Savoy said.
None of those factors are at play today, Savoy said. Now, the combination of rising energy prices and three successive interest rate increases by the Federal Reserve will drain money available to invest in U.S. stocks, he said.
``Now we're pulling it back, because it created inflationary pressures, and we've tightened,'' Savoy said. ``It's not surprising to me that after Y2K passed that we had a natural downward pressure in the equity markets.''
The decline in technology stocks is likely to continue, Savoy said, with mid-size technology companies with high price-to- earnings ratios being the next group of stocks to fall, he said.
``Either big-cap technology moves back up, or, probably more likely, the extremely overvalued companies that trade at huge multiples of revenue, have to have downward pressure on them,'' Savoy said.
Oct/23/2000 12:23 ET
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