Dr.Zax and all...you may have missed this re: PA and his investments...
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it was in my message to Sy last night...from the current issue Seattle PSBJ... (and PS....double <g> on your comments to R)
seattle.bcentral.com
Exclusive Reports
From the March 2, 2001 print edition
Allen shrinks tech portfolio
A $300M stake in jeopardy?
M. Sharon Baker Staff Writer
As the technology-dependent Nasdaq index dropped through two-year lows this week, the chief adviser to technology billionaire Paul Allen had little encouragement to offer.
"Unfortunately, there's a lot more downside in front of us," predicted Bill Savoy, head of Allen's Vulcan Ventures Inc. in a Feb. 27 interview.
Allen's investment manager has been bailing out of most technology stocks for the past year, even filing to sell $9 billion in Microsoft stock. Savoy further signaled his outlook by cutting off funding for Bellevue-based e-commerce startup Mercata Inc., which Allen founded. The company was shut down last month after burning through more than $90 million, a good chunk of it from Allen.
Now Allen and Savoy must devise a strategy for rescuing one of his biggest recent technology investments - the $300 million that Vulcan sank last August into Metricom Inc., a struggling wireless data company.
The entire company is now valued about $140 million, less than half of what Allen invested, and it lost $106 million on operations in the last quarter. Metricom warned last month that it may have to curtail operations if it can't raise more money soon. Allen, with a 43 percent controlling stake in Metricom, is clearly in the driver's seat, and last month installed a Vulcan alumnus as interim CEO.
Savoy said he can't reveal his plans for Metricom because the company is publicly traded. "I have to stand down on that one," he said.
As for Mercata, "the business model was intriguing and there was an opportunity," he said. "But the challenge was that it was just going to be so long to get from here to there, and we couldn't justify the continued investment in that space."
For the record, Savoy started his selling spree more than a year ago, and has taken criticism for his early bailout. "I'm a little pleased only in that I've been vindicated," he said of the criticism. "It now looks like we're one of only a few that has been able to get out intact."
That means that Savoy was able to clear profits even though much of the stock he sold in such companies as Priceline.com, InterNap Network Services Corp., Egghead.com and TheStreet.com was sinking with the overall market. It helps of course, that Vulcan Ventures invested prior to the companies going public.
It took a long time for Savoy to unload 5 million shares of InterNap as the Seattle company's daily trading volume is only about 500,000.
Over the past several years, Savoy has filled Allen's portfolio with 140 private company investments, many of which were early Internet plays that fit into Allen's Wired World vision. Many of those companies are now looking for additional capital, and Savoy said he's in conversation with a number of them.
"Some we may finance, and some of them are a little more challenged," he said.
A very high percentage of Allen's multibillion dollar portfolio is now in cash, with most of that being generated from Savoy's sell-off of Allen's Microsoft holdings.
Vulcan Ventures does not reveal the size of the portfolio Savoy manages, but Forbes recently put Allen's net worth at $28 billion, a figure that includes his ownership of the Experience Music Project, and his sports teams, including the Seattle Seahawks and Portland Trail Blazers.
Allen has filed to sell, or has already sold off, a little more than $9 billion in Microsoft stock over the past year. "That's the primary way we raise cash," Savoy said. "I don't think we sold more in 2000 than in 1999."
Like other venture capitalists, Savoy isn't making too many new investments.
"The companies that are more closely aligned with our cable properties continue to get the lion's share of the attention because we have so much equity invested," Savoy said. "And that business opportunity remains very interesting. We've been trying to use the current environment to hunker down and concentrate on our core assets."
At the same time Savoy is trying to determine what future opportunities might appear. He said he's in the early stages of looking at other market segments. "But I'm not ready to show that card yet," he said. "We have some time to figure it out because the macro environment is going to get more and more challenging."
So where does that leave one of Allen's biggest cash outlays in recent memory, Metricom?
The small company sells high-speed wireless service called Ricochet, typically used by mobile professionals. It had sales of a mere $11.8 million in 2000, and posted a net loss of $245 million.
During the fourth quarter ended in December, Metricom spent $201.6 million building out its network, according to its most recent financial report. For the year, it spent $645 million for capital improvements. At the end of the year, Metricom had $526 million in cash, restricted cash and investments, and long-term debt of $243.4 million.
The company has struggled to build its system and find partners to sell the Ricochet service. The company has 34,000 subscribers and is in the midst of transitioning to a faster offering for customers.
Metricom's stock was trading as high as $16.56 in January, but has tumbled to a mere $4.60 per share due to the latest turmoil.
Billy Bowden, an analyst with Ameri-First Securities, based in Texas, is the only analyst bullish about Metricom. The handful of others have cut their ratings to hold or sell.
Several signs indicate that Savoy will step up, and continue to invest in Metricom, Bowden said. A likely partner would be current investor WorldCom, which owns more than 30 percent of Metricom, or another regional Bell operating company such as Southwestern Bell or BellSouth Corp.
Bowden pointed to interim chief Ralph C. Derrickson as the prime indicator. Derrickson, a board member, replaces Timothy Dreisbach, who suddenly resigned his chief executive and chairman position two weeks ago.
Derrickson, is a founding member of Watershed Capital, and his resumé includes a stint at Vulcan Ventures.
"Paul is already a significant shareholder and last week they replaced the chief executive," Bowden said. "They put a Vulcan affiliate in as CEO to go in and inspect the books. Obviously, they've sent their own guy down there and he'll do some slashing and get the cash burn under control."
Bowden contended that Metricom has suffered from weak marketing and a more complicated rollout of the new technology, which took longer to launch.
The company's hidden value is in its wireless network, which is based upon 900 megahertz unlicensed spectrum, Bowden said. By tapping into unlicensed spectrum, Metricom has avoided paying the government billions of dollars to license airwaves, a move Bowden said gives Metricom a "profound" head start against other wireless carriers.
Allen "is not going to abandon this," Bowden said. "He understands the value of owning a wireless data market that no one can replicate for less than $55 billion to $75 billion because first they'd have to license the spectrum to do it."
Reach M. Sharon Baker at 206-447-8505 ext. 107 or sbaker@bizjournals.com. |
