Corporate Venture Capital Soars, As Funding Hits Record $6.3 Billion

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PREMIERE ISSUE Vol. I, Issue 1

NEWS, 3-7 AOL: CV powerhouse, 3 EDS to invest $1.5 billion, 4 How to keep employees, 4 Intel goes abroad, 6 Excite backs incubator, 9 PROFILES, 8-12 Putting Strategic Investors and Their Partners on the Cusp of Innovation Battery likes corporations, 8 Novell boosts program, 10 Trans Cosmos: Bridge to Japan, 12 Corporate Venturing Deals, 13-20 Corporate Venture Capital Soars, www.corporateventuring.com As Funding Hits Record $6.3 Billion

Venture Holdings Corporate venturing exploded in 1999. Driven by the need to ensure long- May Boost Value term competitiveness, corporations last year announced the formation of Of Company Stock venture capital programs totaling $6.3 billion. That was up from $1.7 billion in 1998, and $1.3 billion in 1997. When Wall Street analyst But the rise in corporate venturing is even more significant than those Alkesh Shah told clients last No- numbers show. The $6.3 billion represents the combined capital only of the 28 vember that shares of ADC Tele- communications Inc. should corporations that announced the sizes of their corporations. trade at $63, rather than his $50 Another 42 corporations began venturing programs last year, but did not prior estimate, the revision wasn’t disclose the sizes of their programs. In the latter category, for example, are for the usual reasons. Chevron Corp., San Francisco; Dell Computer Corp., Red Rock, Texas; ADC hadn’t announced a new product, an acquisition, or strong Continued on page 24 financial results. In fact, the Minnetonka, Minn., supplier of communication equipment hadn’t Corporate Investors around the globe. done anything new at all. These “exchanges” essentially are stra- But, ADC owned 8 percent of Flock to Financing tegically placed buildings in which tele- Siara Systems Inc., a Mountain For Internet Exchanges communication carriers, Internet service View, Calif., telecommunications providers, content companies and Web start-up. And, that morning, pub- When it comes to attracting corporate servers can securely connect with one an- licly traded Redback Networks investors, Equinix Inc. appears to have other. Inc. had agreed to acquire Siara the Midas touch. “It’s really a real estate play in the for $4.3 billion. In a second round equity financing, the Internet space,” says James P. Labe, a Suddenly, ADC’s $3 million Redwood City, Calif., company landed Menlo Park-based managing director of corporate venturing investment $80 million from a syndicate featuring a Comdisco Ventures, which invested in in Siara was worth over $400 dozen corporations, including America Equinix on behalf of its parent, Comdisco million. And that, realized Mr. Online Inc., Dulles, Va.; Cisco Systems Inc., Rosemont, Ill. Shah, an analyst at Morgan Inc., San Jose; Dell Computer Corp., All of Equinix’s corporate backers are Stanley Dean Witter & Co., Round Rock, Texas; and Microsoft Corp., well aware that the Internet’s infrastruc- boosted ADC’s book value by Redmond, Wash. ture has not kept pace with the medium’s $1.80 a share. Equinix, which also raised $200 mil- growth. It isn’t yet common for stock lion in debt, is aiming to make electronic “The structure of the Internet needs to analysts to price the venture capi- commerce more efficient by developing evolve if subscribers are to truly partici- tal holdings of corporations into so-called Internet Business Exchanges pate in the benefits of broadband,” says Continued on page 22 Continued on page 21

Published by 170 Linden Street, Second Floor, Wellesley MA, USA (781) 304-1400 www.assetnews.com ports, those investment assets were to consist of $250 million in AOL Time Warner Positioned cash and an equal amount in pro- NEWS motional time on Time Warner’s BRIEFS To Become Major Venture Investor media outlets. The fund was to make invest- In addition to forming a media which operates a Web site for ments of $5 million to $20 mil- behemoth, the proposed $350 bil- teens; and OpenTV Inc., Moun- lion to acquire non-controlling lion merger of America Online tain View, Calif., which develops stakes in companies engaged in Inc. and Time Warner Inc. is software for digital interactive electronic commerce, vertical and likely to lead to the creation of a television. interactive content, technology, major corporate venturing opera- OpenTV went public in No- infrastructure and other digital tion. vember, and has a market capi- media-related activities. AOL, the Dulles, Va., Inter- talization of about $3.6 billion. The fund was intended to give net service provider, already in- Bolt has filed to go public. Time Warner’s venturing invest- vests heavily in Internet-related Assuming the merger is coming “a new degree of efficiency companies, while Time Warner, pleted, AOL Time Warner would and strategic direction by taking a the New York publishing and be extremely well-positioned to coordinated, portfolio approach entertainment company, in De- become a major corporate ven- to our digital media investments,” cember announced the formation ture capital investor. according to a company state- of a $500 million venture fund. Formed in 1998, AOL Invest- ment in December. However, The Corporate Ven- ments invested in at least 15 In- In recent months, Time Warner turing Report has learned that the ternet-related companies in 1999, also has made venture investments venture capital activities of the according to The Corporate Ven- through its CNN News Group combined company—to be called turing Directory & Yearbook. In subsidiary in Atlanta. AOL Time Warner Inc.—are addition to OpenTV, two of those among the items that a special companies have gone public: four-person committee will con- China.com Inc., a provider of In- sider in the coming months. ternet content to Asia, and Tivo A Newsletter for the Times The committee consists of Inc., a developer of a personal- Welcome to the premier issue of The Corpo- AOL President Robert W. ized television service. rate Venturing Report—the latest newsletter Pittman, AOL Vice Chairman Another company backed in from Asset Alternatives Inc., Wellesley, Mass. Kenneth J. Novak, Time Warner 1999, Sandpiper Networks Inc., a The Corporate Venturing Report each month President Richard D. Parsons, and provider of content delivery ser- will tell you which corporations are starting or Richard J. Bressler, chairman and vices, was acquired by publicly expanding venturing programs, where they are CEO of Time Warner Digital traded Digital Island Inc. investing, and how they are partnering with Media. Other companies backed re- independent venture capital firms and other They, in turn, will make rec- cently by AOL include e-SIM, organizations. ommendations to Stephen M. Jerusalem, Israel, which devel- You also will get useful insights, such as Case and Gerald M. Levin, the ops simulation technology for how corporations recruit and compensate their respective chairmen and CEOs of consumer electronics; Loudeye corporate venturing teams. And you will get AOL and Time Warner. Technologies Inc., Seattle, a cre- unique analysis of how venturing programs are The president of AOL’s ven- ator of digital media solutions; contributing to the corporate bottom line—both ture arm, AOL Investments, is Respond.com Inc., Redwood financially and strategically. Lennert J. Leader, who previously City, Calif., a shopping service, Whether you’re the CEO or CFO of a For- was AOL’s chief financial of- and Riffage.com Inc., Los Ange- tune 1000 company, an EVP of a newly public ficer. les, a Web site showcasing un- company, the head of a corporate venture group, Robert Marcus, executive vice signed pop music bands. an investment banker, analyst, or independent president, business development Until the merger announce- venture capitalist, The Corporate Venturing at Time Warner Digital Media, ment, Time Warner was intend- Report will bring you timely, useful and concise was picked in December to over- ing to increase its venture information that you can use. see Time Warner’s venture capi- investing through the formation The Corporate Venturing Report is a com- tal fund. of the Time Warner Digital panion to The Corporate Venturing Directory Oddly enough, since October, Media Investment Fund, which & Yearbook, also published by Asset Alterna- AOL and Time Warner have co- the company said would have tives. (Get details on the directory at invested in at least two start-up “$500 million in assets.” www.corporateventuring.com.) companies: Bolt Inc., New York, According to published re-

The Corporate Venturing Report PREMIERE ISSUE 3 In conjunction with the acquisition, EDS agreed to take part in NEWS EDS Plans Fund a $60 million financing of Tradex. Consulting Firm BRIEFS Of $1.5 Billion Others participating in the fi- Eyes Venture Profits Continued To Finance Clients nancing include American Ex- To Keep Employees press Co., New York; Chemdex Electronic Data Systems Corp., Corp., Mountain View, Calif.; Cambridge Technology Part- the Plano, Texas, computer ser- and J.D. Edwards & Co., Den- ners Inc. has come up with a new vice company, plans to contrib- ver. reason to back young companies: ute as much as $750 million over If the $1.5 billion figure is employee retention. the next five years to an Internet- reached, the fund would become In an initiative worth watch- Send press oriented venture fund that could one of the largest investment ve- ing, the Cambridge, Mass., man- hicles established by a corpora- releases to be as large as $1.5 billion. agement consulting firm is tion. To invest the capital, The Corporate Called EDS-A.T. Kearney vowing to share up to 20 percent Ventures, the fund will seek to EDS-A.T. Kearney will have of- of the value created by a new Venturing fices in New York, London, Report, 170 take equity positions in EDS’s incubator unit with its 4,400 em- Menlo Park and Plano. ployees worldwide. Linden St., Internet-related clients. A.T. Kearney is EDS’s management Mr. Asper said the size of the Cambridge Technology cur- Second Floor, consulting arm. fund “reflects the scale of the rently has about $100 million in Wellesley, MA The remaining capital will opportunities and the scale of cash and investments, which it 02482-7919, come from EDS consultants and EDS.” can use to fund the incubator’s USA. Or fax to select private equity funds. EDS is no stranger to the pri- activities, said company spokes- 781-304-1440. Co-heading the fund are Rick vate equity industry. It made com- woman Fran Kelly. deNey, an EDS senior vice presi- mitments between 1992 and 1997 Overseeing the fund will be dent of corporate strategy and to diversified buyout funds as part Ralph Linsalata, formerly a se- development, and David Asper, of its strategy to win information- nior vice president with Hill Holi- an A.T. Kearney vice president. systems consulting contracts from day, a Boston advertising firm. So far, the fund has made two the firms’ portfolio companies. Earlier, Mr. Linsalata was a part- investments: CoNext and Tradex Early last year, EDS agreed to ner of Weiss, Peck & Greer Ven- Technologies Inc., both of which sell the 16 partnerships to Cross- ture Partners, San Francisco. make software that allow busi- roads Group, a Dallas invest- Cambridge Technology will nesses to buy supplies online. ment management company, for target application service provid- Atlanta-based Tradex has $525 million. ers and electronic service compa- agreed to be acquired by Ariba Reach Mr. DeNey at (972) nies, among other segments. Inc., a publicly traded provider of 605-9753 in Dallas, and Mr. Asper Cambridge Technology will business-to-business electronic at (312) 223-6100 in Chicago. consider backing startups created commerce services. by its own employees, or by management teams from outside the company. Editorial Customer Service/Subscriptions Employee retention is a big SENIOR EDITOR 781-304-1500 issue for Cambridge Technology, David Barry 781-304-1411 MANAGER Marcie Shear [email protected] REPRESENTATIVES Virginia Holland, which suffered 20 percent turn- THE CORPORATE VENTURING REPORT is Doreen C. Purvis EDITORIAL STAFF Jim Fessenden, Holly over last year. published 12 times a year by Asset Al- Johnson, Tom Salemi, David M. Toll, Electronic Publishing ternatives Inc. The Corporate Venturing Bill Lane The company’s profits have Report is a trademark of Asset Alterna- DIRECTOR Tracy J. Hedberg OPY DITOR SPECIALIST Catherine Cross Karlhuber been dropping, and its share price tives Inc., 170 Linden Street, Second C E Mitch Evich Floor, Wellesley, MA 02482-7919. Tel: PRODUCT DEVELOPMENT COORDINATOR Research is down approximately 50 per- Erin M. McSheffrey (781) 304-1400. Fax: (781) 304-1440. REPORTS Robert M. Pease cent in the past year. Subscriptions $795 a year in the U.S. Marketing & Advertising ANALYST Keith W. Moore and Canada. Overseas subscribers add Cambridge Technology isn’t 781-304-1400 Conferences $60. Single issue price $75. Entire con- DIRECTOR Barbara A. Bissonnette alone in trying to use its venture tents copyright ©2000 by Asset Alterna- DIRECTOR Elizabeth A. Falk MANAGER Lisa B. Hughes program to keep employees. tives Inc. Photocopying of The Corpo- COPYWRITER Edward Yang Office Administration rate Venturing Report, in whole or in ADMINISTRATOR Joseph Spas MANAGER Randy Bush Two other companies that re- part, without permission of the publisher PROJECT COORDINATOR Alyson Savelle cently established venture pro- is a violation of federal and international ADMIN. ASSISTANTS Kim M. Frankian, copyright law. Mike Zeagler grams, Infospace.com Inc., Seattle, and Breakaway Solu- tions Inc., Boston, also are evalu- www.assetnews.com CEO & PUBLISHER Steven P. Galante ating how to use venture profits to reward employees.

4 The Corporate Venturing Report PREMIERE ISSUE Though it is forming a new incubator, Cambridge Technol- Andersen Creates Recent Andersen Consulting ogy Partners will continue to work Investments with its associated venture arm, Venture Division Cambridge Technology Capi- With Internet Focus Blue Martini Software San Mateo, Calif. tal Fund, San Diego, said Ms. Provides e-commerce software Kelly, the spokeswoman. Andersen Consulting, the $8.3 Size of round: $12.5 million (September 1999) Cambridge Technology Capi- Co-investors: U.S. Venture Partners; Matrix billion technology consulting Partners tal, which invests in companies company, has formed a venture Calico Commerce Inc. San Jose that can benefit from a partner- capital division, which is aiming ship with Cambridge Technol- Develops e-commerce software to invest up to $1 billion over the Size of investment: Undisclosed (Sept. 1999) ogy Partners, is raising a fund next five years to create new elec- with a target of $75 million. tronic businesses. ChemConnect Inc. San Francisco The venture affiliate raised a Online chemical exchange Called Andersen Consulting Size of investment: Undisclosed (Sept. 1999) $25 million fund in 1997, with $6 Ventures, the Palo Alto, Calif., million coming from Cambridge division is receiving more than Covation Inc. Brentwood, Tenn. Technology Partners. Producing electronic payment and information $500 million from Andersen, plus payment system for the health care industry. Cambridge Technology Capi- access to intellectual property. tal has funded 18 companies so Size of round: Undisclosed (1999) Heading the division will be Co-investors: Bank of America Corp. far, of which eight have gone pub- Jackson L. Wilson, previously lic; a ninth is in registration. Qpass Inc. Seattle Andersen Consulting’s managing Online transaction and customer network Cambridge Technology Part- partner, global markets. In that ners reported $44 million capital Size of round: $15 million (March 1999) role, Mr. Wilson oversaw Co-investors: RRE Investors; Integral Capital gain from its venture investments Andersen’s strategic alliances, Partners; HNC Software; Venrock Associates; in the third quarter. equity investments and e-com- Oak Investment Partners; TTC Ventures Reach Mr. Linsalata at (617) merce initiatives. Copyright ©2000 Asset Alternatives Inc. 914-9800. Andersen has made more than

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The Corporate Venturing Report PREMIERE ISSUE 5 third of it went overseas, said panies by trading nearly $1 bil- spokesman Robert Manetta. lion in advertising and promo- 140 investments and alliances with NEWS That’s up from as little as 5 tional spots. Internet companies. (See table on percent just a few years ago, Mr. Last year alone, CBS struck BRIEFS previous page for examples.) Manetta said. deals with 14 companies, includ- Continued Mr. Wilson will seek to estab- Asia figured heavily in Intel’s ing three that have gone public. lish relationships with venture international strategy, particularly Industry observers have capital firms, investment banks India and China. The company speculated that CBS will follow and e-commerce providers. The also invested in Europe and Aus- the lead of NBC and create a venture unit will invest in the U.S., tralia. separate, publicly traded Internet Europe and Asia. A key goal of Intel’s interna- unit that would likely include the Reach Mr. Wilson at (650) tional investors is “to grow the investments CBS has made. 213.2000 Internet economy worldwide, and A CBS spokesman would only help speed the Internet’s adapta- say that the formation of such a tion overseas,” Mr. Manetta said. unit is “a strong possibility.” Intel Put Focus In its first investment in Po- Among the companies in On Investments land, for example, Intel backed which CBS recently has taken Wirtualna Polska, which oper- stakes are MVP.com Inc., Chi- Outside U.S. in ’99 ates a Polish Internet portal. cago, an online seller of sporting Intel puts an investment team goods, and Loudeye Technolo- Intel Capital, the venture capital in each overseas market it wants gies Inc., Seattle., which is devel- arm of Intel Corp., Santa Clara, to enter. Those dealmakers report oping digital media applications. Calif., put a strong emphasis on to Stephen Nachtscheim and Reach Mr. Pillar through CBS investing outside the United States Leslie Vadasz, who oversee at (212) 975-4321. in 1999. Intel’s business development ac- The semiconductor maker in- tivities. vested about $1 billion in venture At year’s end, Intel Capital investments last year, and about a valued its portfolio at $8 billion, E*Trade Prepares including $7.1 billion in market- To Raise New Fund Corporate Venturing Briefs able securities. With Higher Target Mr. Natchtscheim and Mr. • Heidrick & Struggles International Inc., Chi- Valdasz are at (408) 765-8080. E*Trade Group Inc., which qui- cago, created a venture unit, H&S Capital, which it etly closed a $100 million ven- expects to capitalize with $25 million in corporate ture fund in October, will be back funds. H&S Capital will invest in early-stage technol- Pillar Joins CBS in the coming months to raise a ogy companies for which its parent conducts execu- new fund from outside investors. tive searches. Details from Charles Polachi, a Heidrick To Be Point Man Thomas A. Bevilacqua, chief & Struggles managing partner in Lexington, Mass., at On Internet Deals corporate development and stra- (781) 862-3370 tegic investment officer of the • Central Newspapers Inc., publisher of the Ari- Keep an eye on CBS Corp. online brokerage firm, said the zona Republic, Indianapolis Star and other newspa- With the hiring of Russ Pillar size of the new partnership has pers, created CNI Ventures. Heading the venture unit as president and CEO of CBS not been determined, but that it is is Howard I. Finberg, director of technology & infor- Internet Group, the New York expected to be “substantially” mation strategy for the Phoenix publisher. CNI Ven- broadcasting company for the first larger than the first fund. tures will invest in companies developing new methods time has someone dedicated to Menlo Park-based E*Trade of delivering news and other information. Reach Mr. Internet investing. provided a quarter of the capital Finberg at (602) 444-1100. Until now, President and CEO in the first investment pool, Mel Karmazin and Chief Finan- E*Trade E-Commerce Fund. • First Consulting Group Inc., Long Beach, Calif., cial Officer Fredric Reynolds The remainder came from in- a publicly traded provider of health care consulting shared responsibility for the stitutional investors, including a and management services, established a $15 million company’s Internet investments. “large media company and a large venture subsidiary. It will make investments of $1 Mr. Pillar, formerly president insurance company,” Mr. million to $3 million in information technology com- and CEO of Virgin Entertainment Bevilacqua said. panies serving health care service providers, drug and Group, will report to Mr. E*Trade assembled the fund biotech companies, and medical device makers. De- Reynolds. to invest in e-commerce compa- tails from Managing Director Thomas A. Olenzak at Since 1997, CBS has gained nies beyond the financial services (610) 989-7080 in Wayne, Penn. stakes in 16 Internet-related com- area, Mr. Bevilacqua said.

6 The Corporate Venturing Report PREMIERE ISSUE Mr. Bevilacqua manages the network consists of more than Byers, Menlo Park, also partici- fund, along with Christos M. 1,800 Web sites, including those pated. Cotsakos, E*Trade’s chairman of America Online Inc., Microsoft Caldera Systems Inc., an and CEO. Corp., Lycos Inc. and Dow Jones Orem, Utah, provider of Linux Through early January, the & Co. business solutions, received $30 fund had invested in seven com- Ms. Strom said InfoSpace es- million from a group that included panies, including three that have tablished the fund to formalize its Sun Microsystems; Novell Inc., gone public: WebVan Group Inc., investing activities. Orem; Citrix Systems Inc., Fort an online grocery store; Last month, for instance, the Lauderdale, Fla., a developer of PlanetRx.com Inc., an online company invested $9 million in application-server software; and pharmacy; and Official Payments publicly traded e-Sim, Jerusalem, Santa Cruz Operation Inc., a Corp., a provider of electronic Israel, along with InfoSpace CEO Unix-based developer of open- payment options to government Naveen Jain and America Online system software. entities. Inc., Dulles, Va. In addition, Corel Corp., the Two more investments are in The new fund will allow Ottawa, Ontario, business soft- the pipeline, Mr. Bevilacqua said. InfoSpace to boost its average ware developer, took one-third The fund is averaging investments investment to about $5 million interests in both LinuxForce, a of about $6 million per company. from the current maximum of $1.5 Philadelphia-based provider of E*Trade recently participated million, Ms. Strom said. Linux services, and Newlix in a financing of Equinix Inc., Though Ms. Strom has relin- Corp., an Ontario-based Linux the Redwood City, operator of quished her titles as president and developer. Internet business exchange facili- chief operating officer, she will ties (see story on page 1); as well stay on InfoSpace’s board. as of Financial Engines Inc., Palo Reach Ms. Strom at (425) 882- Alto, Calif., and Loan City.com 1602. Thomson Team Spins Out Inc., San Jose. (See page 15 of the The Corporate Venturing Report With Publisher’s Blessing Deals section). Corporate Funds Thomson Corp., the Toronto publishing gi- Mr. Bevilacqua said E*Trade ant, has ceased making direct investments in is searching for additional invest- Queue Up to Finance young technology companies, and instead has ment professionals to help man- Linux Companies become a limited partner of newly created ven- age the new fund. ture firm NeoCarta Ventures. Reach him at (650) 331-6027. Like magnets to metal, corporate Thomson made the change after D. Jarrett investors continue to be drawn to Collins and Karin Kissane, who ran TTC Ven- companies utilizing Linux. tures, Thomson’s venture arm, left to form InfoSpace Selects An open-source computer NeoCarta. operating system, Linux is seen The venture firm, which has offices in Cam- President to Run as competition for Microsoft Win- bridge, Mass., and San Francisco, has raised a New Venture Fund dows and various versions of $300 million fund, NeoCarta Ventures, L.P. Unix. Mr. Collins, who started TTC Ventures in InfoSpace.com Inc., the high- Within the past month alone, 1995, described the transition as amicable. He flying provider of Internet infra- corporations have invested in at said he and Ms. Kissane wanted to be part of a structure services, has formed a least four Linux-related compa- program with “long-term stability.” Corporate venture capital fund and chosen nies. venture programs, he said, historically have had its former president, Bernee D.L. Linxucare Inc., a San Fran- “short half-lives” for a variety of reasons, in- Strom, to run it. cisco provider of Linux services, cluding corporate politics. InfoSpace, Redmond, Wash., attracted investments from Dell Also on NeoCarta’s team are Thomas has contributed $30 million ini- Computer Corp., Red Rock, Naughton and Tony Pantuso, both formerly tially to the investment vehicle, Texas; Oracle Corp., Redwood vice presidents of GE Equity, the investment named InfoSpace.com Venture Shores, Calif.; Motorola Inc., arm of General Electric Corp., Stamford, Conn. Capital Fund. Schaumburg, Ill.; and Sun NeoCarta intends to make investments of $1 The fund will invest in Inter- Microsystems Inc., Mountain million to $10 million in Internet commerce net start-ups that complement View. companies exclusively. InfoSpace’s business. Linuxcare raised $32 million Mr. Collins and Mr. Naughton are in Cam- InfoSpace provides technolo- in a round led by Patricof & Co. bridge at (617) 528-3820; Mr. Pantuso and Ms. gies and Internet services to con- Ventures Inc., New York. Kissane are in San Francisco at (415) 217-8617. sumers and merchants. Its affiliate Kleiner, Perkins, Caufield &

The Corporate Venturing Report PREMIERE ISSUE 7 PARTNER Stategic Partners Add to Battery’s Clout INSIGHTS Corporate Ties Help Firm Land Deals, Assist Portfolio Companies

When Battery Ventures courts technology entre- Battery expected such companies would consti- preneurs, the firm’s partners cites their strong track tute about 70 percent of its new portfolio holdings, records, technology prowess and abundant invest- says General Partner Todd A. Dagres. Battery has ment capital—but so do many other successful ven- become so focused on communications, however, ture capitalists. that the Convergence Fund has invested in all 30 Now, partners of the Wellesley, Mass., firm can companies Battery has financed with Battery Ven- advertise a stronger distinction: their ability to link tures V, Mr. Dagres says. young companies with potent corporate partners, like Bell Atlantic Corp., New York; Nortel Networks More Than Money Corp., Brampton, Ontario, and Novell Inc., Orem, As a result, the Convergence Fund has contributed Utah. about 9 percent of the capital that Battery has invested Recognizing that corporate partners can acceler- in new companies in the past year. ate the growth of telecommunications and Internet More than capital, though, the Convergence Fund startups, Battery last year raised a $40 million venture gives Battery a structured way of helping portfolio fund exclusively from strategic limited partners. companies gain product distribution. Convergence Fund, L.P., invests alongside the Recently, for instance, in an event billed as “Bat- $400 million institutional fund, Battery Ventures V, tery Day at Bell Atlantic,” seven portfolio companies L.P., that Battery formed last year. presented to Bell Atlantic’s technical and operations staff. After the meeting, Bell Atlantic decided to talk Corporate Investors further with six of those companies, Mr. Dagres says. Besides Bell Atlantic, Nortel and Novell, the (The telecom company already had a relationship corporate limited partners in the Convergence Fund with the seventh company.) include Corning Inc., Corning, N.Y., which makes optical communications products; Williams Com- Help With Due Diligence munications Group, Tulsa, Okla., which develops Battery also occasionally calls on its corporate communication networks; Ameritech Corp., the partners for help when doing due diligence on poten- Chicago telecom company acquired last fall by SBC tial investments. Communications Corp.; and Pilot House Associates, Battery’s cooperation with corporations, how- Boston, the investment firm of Amos B. Hostetter Jr., ever, extends beyond the investors in the Conver- founder of Continental Cablevision. gence Fund. The Convergence Fund was designed to invest For example, as a backer of Akamai Technolo- exclusively in companies that are finding new ways to gies Inc., Cambridge, Mass., Battery co-invested exploit telecom, data communications, media and with Apple Computer Corp., Cupertino, Calif.; Cisco Internet opportunities. Systems Inc., San Jose; and Microsoft Corp., Redmond, Wash.—none of which is in the Conver- gence Fund. To be sure, Battery must be careful about manag- AT A GLANCE ing relationships with its corporate partners to avoid conflicts. Battery Ventures For example, the corporate LPs in the Conver- gence Fund cannot invest individually in an initial Main Office Key Personnel financing round, though they can come in directly in 20 William Street Todd A. Dagres, General Partner subsequent rounds. Suite 200 Oliver D. Curme, General Partner For the same reason, corporate investors in the Wellesley, MA 02481 Capital fund cannot veto participation in a deal by any other Phone: (781) 577-1000 $800 million corporation—even a competitor—that isn’t a fund Fax: (781) 577-1001 Industry Preferences investor. Web site: www.battery.com Communications, “Our first and last rule is that we have to do what’s Telecommunication, Internet best for the portfolio company,” Mr. Dagres says. “That is the fiduciary responsibility we have to our Source: Galante’s Venture Capital & Private Equity Directory (institutional) investors.”

8 The Corporate Venturing Report PREMIERE ISSUE of emerging companies, and a pulse for the industry on the future of Web-based direct marketing and e- Accel Taps Six Corporations commerce.” PARTNER For Fund Focused on Internet Excite@Home has made at least eight direct in- INSIGHTS vestments since May 1999. Two of those companies, Six technology and media corporations contributed a E-Stamp Corp. and Quokka Sports Inc., have gone total of $30 million to a $120 million Internet fund public, and a third, WebMD Inc., merged last year formed by Accel Partners, Palo Alto. with publicly traded Healtheon Corp. The six are Dell Computer Corp., Microsoft Excite@Home most recently participated in a Corp., Nortel Networks Inc., Novell Inc., Sun $100 million financing for Vstream Corp., a Boul- Microsystems Inc. and Walt Disney Co. der, Colo., communications service provider. Other The remaining $90 million of the fund came from investors in the round included Highland Capital executives and entrepreneurs. Partners, Boston, Softbank Technology Venture, Accel will invest the Internet fund alongside its San Jose; and GE Equity, Stamford, Conn. latest institutional partnership, the $480 million Accel Excite@Home was formed last year through the VII, L.P. merger of Excite Corp. and @Home Corp. Two years ago, Accel organized a $35 million Mark Stevens, Excite@Home’s executive vice fund with capital from Microsoft, Nortel, Compaq president of business development, oversees Excite’s Computer Corp., CSK Corp. and Lucent Tech- direct investing program. He is at (650) 569-5000. nologies Inc. Last year, 11 of Accel’s portfolio companies went public, creating $40 billion of market value. Reach Accel Managing General Partner James W. Media Technology Expands Breyer at (650) 614-4800. List of Corporate Investors

Media Technology Ventures, San Francisco, which raises capital solely from corporations, closed its third Excite@Home Takes Stake fund at $165 million. In Internet Incubator Firm Corporations investing with MTV for the first time are Best Buy Co., Inc., Eden Prairie, Minn.; Excite@Home Corp., boosting its corporate ventur- Rogers Communications Inc., Toronto; Marks & ing activities, took a step toward getting an earlier Spencer plc and Diageo plc, both of London; and J.P. look at promising young companies. Morgan & Co., Dow Jones & Co. and A&E Televi- The Redwood City, Calif., Internet company took sion Networks, all of New York. a minority stake in iBelay.com, a newly formed Inter- Returning investors are Comcast Corp., Phila- net accelerator firm. delphia; Freedom Communications Inc., Irvine, Based in Boulder, Colo., iBelay was founded by Calif.; Fujitsu Ltd., Tokyo; GIMV, the Netherlands; Peter Estler, the founder and former CEO of Hallmark Cards Inc., Kansas City, Mo.; Motorola MatchLogic Inc. Excite@Home acquired MatchLogic Inc., Schaumburg, Ill.; Sun Microsystems Inc., Palo in 1998 for $90 million. Alto, Calif.; WPP Group plc, London; Hearst New iBelay has 32 technology, engineering and busi- Media and NBC Corp., both of New York; and GE ness specialists to assist Internet start-ups. The firm Equity and GE Financial Assurance, both units of aims to help venture capital firms maximize their General Electric Co., Stamford, Conn. returns by reducing the time that it takes portfolio MTV will use the fund to make seed and early- companies to bring products to market. stage investments, ranging from $500,000 to $4 mil- iBelay’s own portfolio already includes lion. The new fund has the same focus as MTV’s $71 netLibrary Inc., also of Boulder, and Epidemic million first limited partnership, formed in 1997. Marketing Inc., Denver. The firm also manages a $150 million fund for To nurture its Internet creations, iBelay is raising early- and mid-stage investments, which it raised last a $100 million venture fund. It has closed on $50 year and is still investing. million so far, Mr. Estler said. MTV’s investments include Medscape Inc., The size of Excite@Home’s commitment was not Quokka Sports Inc. and Talk City Inc., all of which disclosed. However, George Bell, the president and went public in 1999. The firm also was an investor in CEO of Excite@Home, will serve on iBelay’s advi- Sandpiper Networks Inc., which merged with pub- sory board. licly traded Digital Island Inc. last year. In a prepared statement, Mr. Bell said, “We antici- Reach MTV General Partner Robert R. Ackerman pate iBelay.com to be a window for us into the world Jr. at (415) 977-0500.

The Corporate Venturing Report PREMIERE ISSUE 9 CORPORATE Novell Directors Boost Venture Program PROFILE Network Software Maker Uses Direct, Fund Investments to Further Strategic Goals

The directors of Novell Inc. recently gave the soft- them until they become category leaders. ware company’s venture capital activities a big vote Novell uses its relationships with venture firms of confidence. to identify direct investment opportunities, says Blake The board voted to nearly double Novell’s alloca- Modersitzki, the managing director of Novell Ven- tion for direct and partnership venture investments to tures. For instance, Novell Ventures invested along- $170 million from $95 million. side Kleiner, Perkins, Caufield & Byers in Oblix The new allocation earmarks $80 million for di- Inc., a Mountain View, Calif., automation software rect investments, which the Orem, Utah, company company. makes through its in-house venture arm, Novell Ven- “In our mind, coupling a venture capital firm with tures, and $90 million for investments in venture a corporation is the right model,” Mr. Modersitzki capital limited partnerships. says. Novell Ventures was formed in 1997 with a $50 Novell Ventures generally invests $1 million to $5 million allocation. The firm invests primarily in com- million per round, and prefers to keep its ownership panies that can strengthen demand for Novell’s direc- stake below 20 percent, he says. tory-based networking technology. The venture unit, he says, prefers that financial Novell, which currently has more than $1 billion investors—i.e., venture capitalists—determine the in cash on its books, has a market capitalization of valuations of portfolio companies, rather than corpo- approximately $11.5 billion. rations, which tend to base their judgements on stra- Through December, Novell Ventures had made tegic value. direct investments in 15 companies. Among them is “I want to keep the product guys out of the discus- Red Hat Inc., the high-flying Linux company whose sion in determining the value of the company,” Mr. shares ended the year at around $225 a share after Modersitzki says. “Like any other venture capitalist, going public last August at $14. I want the best price I can get.” On the partnership side, Novell is an investor in the funds of, among others, Kleiner, Perkins, Caufield & Byers, Menlo Park; Oak Investment Partners, Recent Novell Investments Westport, Conn.; Advent International Corp., Bos- ton; Hummer Winblad Venture Partners, San Fran- Caldera Systems Inc. Orem, Utah cisco; Broadview, Fort Lee, N.J.; and Technology Develops Linux-based business solutions Crossover Ventures and Accel Partners, both of Size of round: $30 million (January) Co-investors: Chicago Venture Partners; Citrix Palo Alto, Calif. Systems Inc.; Egan-Managed Capital; Santa Last December, Novell put $20 million into Cruz Operation Inc.; Sun Microsystems Inc. Redleaf Group LLC, Saratoga, Calif., making Novell Edgix Corp. New York the second-largest shareholder of the newly formed Internet content delivery Internet operating company. Size of round: Undisclosed (June 1999) Initially capitalized at $150 million, Redleaf in- Indus River Networks Inc. Acton, Mass. tends to develop business-to-business e-commerce Provides Internet access for employees to their companies, starting at the seed stage and nurturing office networks Size of round: $14 million (July 1999) Co-investors: Ascent Venture Partners; Comdisco Ventures; MCI WorldCom Fund; New AT A GLANCE Enterprise Associates; OneLiberty Ventures Oblix Inc. Mountain View, Calif. Novell Ventures Develops automation software Size of round: $24 million (October 1999) Co-investors: CSK Venture Capital; Cisco Main Office Key Personnel Systems Inc.; Intel 64 Fund; Kleiner, Perkins, 1555 N. Technology Way Mr. Blake Modersitzki, Managing Caufield & Byers; Lehman Brothers; Patricof & Orem, UT 84097 Director ([email protected]) Co. Ventures Inc.; Presidio Venture Partners; Phone: 801 861-7000 Ms. Stacy Kresge, Investment Robertson Stephens Bayview 99; Siemens Fax: 801 222-4474 Coordinator ([email protected]) Mustang Ventures; Sumitomo Corp.

10 The Corporate Venturing Report PREMIERE ISSUE CORPORATE Trans Cosmos Builds Bridges to Japan PROFILE Tokyo Parent Gives U.S. Unit $150 Million to Boost Internet Investing

Trans Cosmos USA Inc., a Bellevue, Wash., sub- however, Trans Cosmos USA evolved into a strategic sidiary of Trans Cosmo Inc. of Tokyo, has stepped up investment arm of the parent company. It has funded its investment pace—welcome news for U.S. Internet its investments with periodic infusions of capital from companies seeking to do business in Japan. its parent, and by recycling gains from prior invest- After investing just $15 million in 17 transactions ments. in 1997 and 1998, Trans Cosmos USA put about $45 The technology-transfer aspect of its original mis- million into 35 companies in 1999. This year, the firm sion is still evident in the way Trans Cosmos USA expects to invest between $100 million and $300 invests, however. Its core strategy is to back Internet million in perhaps as many as 60 companies, says startups in the U.S. that it can help obtain business in Steve Clemons, a Trans Cosmos USA managing Japan by using the contacts of its Tokyo parent. director. Trans Cosmos USA recently received $150 mil- International Focus lion in fresh investment capital from its Japanese “We are very focused on international expan- parent, which specializes in information systems con- sion,” Mr. Clemons says. “You cannot be a dominant sulting. That is half of the $300 million that the parent player without world leadership. And, with the Inter- raised in a secondary stock offering in October. net, that has become even more important.” (The Tokyo parent is using another $50 million For example, after investing in Seattle software from the offering to create an early-stage venture maker Primus Knowledge Solutions Inc., Trans Cos- capital fund in Japan, in partnership with Nikko mos USA introduced Primus’ Internet-based cus- Securities Corp., Tokyo.) tomer support systems into Japan. Now, Japan accounts Formed in 1966, Trans Cosmos is Japan’s oldest for a quarter of Primus’ sales, a point that stock market and largest provider of outsourced customer service analysts haven’t missed. and information technology support solutions. The Trans Cosmos USA’s portfolio also includes such company set up shop in the U.S. in 1989, initially to high-flyers as DoubleClick Inc., New York, and identify technology that it could apply in Japan. RealNetworks Inc., Seattle. As Internet technology advanced in the 1990s, RealNetworks, which develops products and services to enable the delivery of so-called “streaming media” over the Internet, boasts a market capitaliza- Recent Trans Cosmos USA Investments tion of approximately $9 billion. Trans Cosmos USA invests primarily in young Acadio Seattle companies involved in customer service, e-commerce, Online site for professional education Internet marketing and new media––the same four Size of round: $3 million (November 1999) areas that its parent pursues in Japan. Co-investors: Founder Steven Sperry and individuals AtomFilms Seattle Shifting to Late-Stage Deals Focused on creating mass market for short films, animations With its new capital, Trans Cosmos USA intends and digtial media to pursue more late-stage opportunities than it has in Size of round: $20 million (December 1999) Co-investors: Chase Capital Entertainment Partners, Chase the past. Capital Partners, Arts Alliance, Intel Corp. The company is making the switch, Mr. Clemons Riffage.com Los Angeles says, partly because it is easier to take late-stage such Web site showcasing unsigned bands companies to Japan. Size of round: $21 million (December 1999) Additionally, Mr. Clemons says, he and the firm’s Co-investors: America Online Inc.; BMG, Bertelsmann two other managing directors, James J. Geddes Jr. and Ventures; Mayfield Fund Mark Kalow, are reaching their practical limits for Total Sports Inc. Raleigh, N.C. taking board seats. Online provider of sports coverage Size of round: $35.5 million (November 1999) However, Trans Cosmos USA is recruiting more Co-investors: Technology Crossover Ventures; Zilkha investment professionals, Mr. Clemons says, so the Capital Partners; EGL Holdings; Sycamore Venture; capacity constraint may be only temporary. Access Technlogy;l WinStar New Media; InterBrew/Labatt; Reach Mr. Clemons at (425) 468-3930, Mr. Kalow Asdale Ltd. at (650) 631-0051, or Mr. Geddes at (703) 698-0080. Copyright ©2000 Asset Alternatives Inc. The web address is www.transcosmos.com.

12 The Corporate Venturing Report PREMIERE ISSUE Corporate Venturing Deals

ADC Telecommunications Inc. investing in the $21 million round include Bertelsmann Ventures, Santa Barbara, Calif.; The Minnetonka, Minn., supplier of communication Mayfield Fund, Menlo Park; Trans Cosmos USA, systems and supplies invests in Ensemble Commu- Kirkland, Wash; and BMG Entertainment, New nications Inc., San Diego. (See item under Digital York. Microwave Corp. for details.) Adobe Systems Inc. American Express Co. The New York financial services company adds two The San Jose software company, through its venture companies to its portfolio: arm Adobe Ventures, makes new investments in: Paytrust.com Inc., Princeton, N.J., which pro- Cascade Systems Inc., Acton, Mass., which vides an online service for receiving and paying bills. provides electronic merchandising services enabling Joining Amex in the $30 million round are Softbank business to create targeted advertising campaigns. Venture Capital, San Jose; GE Equity, Stamford, Tudor Investment, San Francisco, leads the $12 Conn.; Goldman Sachs Group Inc., New York; and million round, with participation from H&Q Ven- Thomas Weisel Partners, San Francisco. ture Associates LLC, San Francisco. Tradex Technologies Inc., Atlanta. (See item Covalent Technologies Inc., Lincoln, Neb., under Chemdex Corp. for details.) which provides Apache Web server e-commerce solutions. Other investors in the $5 million first-round financing are H&Q Venture Associates LLC and TI In This Issue Ventures, both of San Francisco. Virage Inc., San Mateo, Calif. (See item under ADC Telecommunications Inc., 13 Marriott International Inc., 17 Reuters Group plc for details.) Adobe Systems Inc., 13 Microsoft Corp., 17 America Online Inc., 13 Mitsubishi Corp., 18 American Express Co., 13 Mitsui & Co., 18 America Online Inc. American International Group Inc., 14 NBC Corp., 18 The Dulles, Va., Internet company adds three compa- BMG Entertainment, 14 Nissho Electronics Corp., 18 nies to its corporate venture capital portfolio: Bechtel Group, 14 Nokia Corp., 18 Bolt Inc., New York, which operates an online Bertelsmann AG, 14 NTT Communications Corp., 18 site for teens (www.bolt.com). Bolt raises more than CBS Corp., 14 Office Depot Inc., 18 $40 million in the round, and immediately files to go CNET Inc., 14 Pacific Century Cyberworks, 18 Chemdex Corp., 14 PSINet Inc., 18 public. Other investors include Comcast Interactive Cisco Systems Inc., 14 Purchasepro.Com Inc., 18 Capital Group, Philadelphia; Ford Motor Co., Columbia/HCA Healthcare Corp., 15 Qualcomm Inc., 18 Dearborn, Mich.; Entercom Communications Corp., Comcast Corp., 15 Reckson Service Industries, 18 Bala Cynwyd, Penn.; Bechtel Enterprises, San Fran- Comdisco Inc., 15 Reuters Group plc, 18 cisco; Highland Capital Partners, Boston; Oak Digital Microwave Corp., 15 SAP AG, 19 Investment Partners, Westport, Conn.; and Moore E.I. Dupont De Nemours & Co., 15 Samsung Corp., 19 Capital, Sandler Capital Management and Time E*Trade Group Inc., 15 Sara Lee Corp., 19 Warner Inc., all of New York. Electronic Arts Inc., 15 Siemens AG, 19 Loudeye Technologies Inc., Seattle, which is Excite@Home Corp., 15 Singapore Technologies Group, 19 developing digital media applications. The company Ford Motor Co., 16 Sony Corp. of America, 19 raises $48 million, and then files to go public. Also General Instrument Corp., 16 St. Paul Companies Inc., 19 General Electric Co., 16 Starbucks Coffee Co., 19 investing in the round are Barksdale Group, Menlo Global Crossing Ltd., 16 Sun Microsystems Inc., 19 Park; Creative Artist Associates, Los Angeles; Intel Hikari Tsushin Inc., 16 Tenet Healthcare Corp., 20 Corp., Santa Clara, Calif.; Encompass Group and Inktomi Corp., 16 Texas Instruments Inc., 20 Olympic Venture Partners, both of Kirkland, Wash.; Itochu Corp., 16 3Com Corp., 20 entities affiliated with Hambrecht & Quist and Intel Corp., 16 Time Warner Inc., 20 Robertson Stephens, both of San Francisco; and International Data Group, 17 United Parcel Service of America Inc., 20 RRE Venture Partners, CBS Corp., NBC Corp., ITurf Inc., 17 U.S. Office Products Co., 20 Wasserstein Adelson Ventures, Allen & Co. and J.D. Edwards & Co., 17 Valuevision International Inc., 20 Waterview Partners, all of New York. Kingston Technology Corp., 17 Williams Communications, 20 Riffage.com Inc., Los Angeles, which oper- LVMH Moet Hennessy Louis Vuitton, 17 Wi-LAN Inc., 20 ates a Web site showcasing unsigned bands. Others MapInfo Corp., 17 ZDNet, 20

The Corporate Venturing Report PREMIERE ISSUE 13 CNET Inc. The San Francisco computer information company Continued Corporate Deals adds three holdings to its portfolio: FloNetwork Inc., Greenwich, Conn., which American International Group raises $15 million from a group that includes Sy- The New York insurance company invests in Finan- camore Ventures, Lawrenceville, N.J.; Ontario cial Engines Inc., Palo Alto, Calif. (See item under Teachers Pension Fund, North York, Ontario; Bank E*Trade Group Inc. for details.) of Montreal Capital Corp, Montreal; McLean Watson Capital Inc., Toronto; and Ventures West BMG Entertainment Management Inc., Vancouver, British Columbia. FloNetwork, formerly known as Media Synergy, pro- The New York record company, which is owned by vides e-mail marketing and delivery services. Bertelsmann AG, invests in Riffage.com Inc., Los Multitude Inc., South San Francisco, Calif., Angeles. (See item under America Online for details.) which is developing products for delivering voice communication over the Internet. Investors in the $35 Bechtel Group million financing include VantagePoint Venture Through its financing arm, Bechtel Enterprises Hold- Partners, San Bruno, Calif.; Amerindo Investment ings Inc., the San Francisco engineering company Advisors, San Francisco; Essex Investment Man- invests in: agement, Boston; and iTurf Inc. and J&W Seligman, Bolt Inc., New York. (See item under America New York. Online Inc. for details.) Niku Corp., Redwood City, Calif., which pro- iAsiaWorks, San Mateo, Calif., which is work- vides software and business portals that enable busi- ing to provide Internet solutions in Asia. The $85 million nesses to manage and deliver professional services round also includes Enterprise Partners, San Diego; using the Internet. CNET contributes $5 million to a Institutional Venture Partners, Menlo Park; Samsung $40 million round in a group that includes Amerindo Corp., Seoul, Korea; BT/Alex Brown and New Enter- Investment Advisors Inc., San Francisco; Charter prise Associates, both of Baltimore; Newbridge Asia, Growth Capital, Palo Alto; Essex Investment Man- Walden Group of Funds and Hambrecht & Quist agement, Boston; TATA Consulting, India; J.H. LLC, all of San Francisco; and Sprout Group, Salomon Whitney & Co., Stamford, Conn.; and Venrock Brothers and Morgan Stanley Dean Witter Venture Associates, New York. Partners, all of New York. Chemdex Corp. Bertelsmann AG The Mountain View, Calif., company, which sells Through Bertelsmann Ventures, its venture arm, the laboratory supplies online, invests $10 million in German publishing and music company provides Tradex Technologies Inc., Atlanta. Tradex, set to be financing for: acquired by publicly traded Ariba Inc., provides a Expertcity.com Inc., Santa Barbara, Calif. (See platform for buyers and sellers to exchange goods, item under Sun Microsystems Inc. for details.) services and information in online trading communi- Riffage.com Inc., Los Angeles. (See item un- ties. Other investors in the $60 million financing are der America Online Inc. for details.) American Express Co., New York; Electronic Data Systems Corp., Plano, Texas; and J.D. Edwards & CBS Corp. Co., Denver. The New York broadcasting company adds the fol- Cisco Systems Inc. lowing companies to its portfolio: Loudeye Technologies Inc., Seattle. (See item The San Jose networking company invests in the under America Online Inc. for details.) following companies: MVP.com Inc., Chicago, which sells sporting Asera Inc., Redwood City, Calif., which de- goods online. CBS receives a stake of undisclosed velops targeted internal corporate Web sites. Leading size in exchange for providing $85 million in adver- the $47.4 million financing is Bowman Capital Man- tising time and other considerations over the next four agement, San Mateo, Calif. Other investors include years. (SportsLine.com Inc., Ft. Lauderdale, Fla., Intel Corp., Santa Clara, Calif.; General Electric also strikes an equity-for-marketing exchange.) Join- Capital Services, Stamford, Conn.; Hambrecht & ing CBS are Benchmark Capital, Menlo Park, and Quist LLC, San Francisco; Crescendo Venture Freeman Spogli & Co., Los Angeles, which invest Management, Minneapolis; Itochu Corp., Tokyo; $65 million in MVP.com. and Kleiner, Perkins, Caufield & Byers and Inte- gral Capital Partners, both of Menlo Park.

14 The Corporate Venturing Report PREMIERE ISSUE Belle Systems A/S, Holbaek, Denmark, which E.I. Dupont De Nemours & Co. produces software for advanced information process- The Wilmington, Del., science company participates ing management systems. Cisco is a return investor in in a $66 million financing of E-Steel Corp., which the $36 million round, which is led by General operates an online business-to-business exchange for Atlantic Partners, Greenwich, Conn. Other inves- the metals industry. Goldman Sachs Group Inc., tors include Index Ventures, Geneva, Switzerland, New York, leads the financing. Other investors in- and Vertex Management Inc., Redwood City, Calif. clude Bessemer Venture Partners, Wellesley Hills, Enterprise Networking Systems Inc., Red- Mass.; Kleiner, Perkins, Caufield & Byers, Menlo wood City, Calif., which provides network consulting Park; Greylock Management Corp., Boston; Vulcan and professional services. Cisco leads the $90 million Ventures, Bellevue, Wash.; GE Equity, Stamford, round, which includes participation from returning Conn.; Amerindo Investment Advisors, San Fran- investors Benchmark Capital and Trinity Ven- cisco; Mitsubishi Corp., Tokyo; and MSD Capital, tures, both of Menlo Park. Mitsui & Co. USA and Generation Partners, all of Columbia/HCA Healthcare Corp. New York. The Nashville, Tenn., owner and operator of hospitals E*Trade Group Inc. commits up to $40 million to empactHealth.com Inc., The Menlo Park, Calif., online personal finance com- also of Nashville. Using the Internet to link health care pany invests in: providers and suppliers, empactHealth.com aims to Financial Engines Inc., Palo Alto, Calif., which lower purchasing costs for health care companies. provides online investment advice for individual investors and Fortune 500 companies. Oak Hill Part- Comcast Corp. ners, New York, leads the $85 million round. Other The Philadelphia operator of broadband cable net- investors are Intel Corp., Santa Clara, Calif.; State works invests through its Comcast Interactive Capital Street Global Advisors, Boston; New Enterprise Group in: Associates, Baltimore; Foundation Capital, Menlo Bolt Inc., New York (See item under America Park; Charter Venture Capital, Palo Alto; Thomas Online Inc. for details.) Weisel Partners and Hambrecht & Quist LLC, PlanSoft Corp., Cleveland, an Internet-based both of San Francisco; and American International business-to-business solution provider for the meet- Group Inc., Chase Manhattan Corp., Goldman ing and convention industry. Comcast Interactive co- Sachs Group Inc. and Merrill Lynch & Co., all of leads the $24 million round with Cornerstone New York. Equity Investors, New York. Other investors are LoanCity.com Inc., San Jose, an online source Patricof & Co. Ventures Inc. and Wasserstein of residential mortgage loans. Joining in the $38.4 Adelson Ventures, both of New York; IDG Ven- million round are Century Capital Management tures, San Francisco; Key Mezzanine Capital, Cleve- Inc., Boston; InterWest Partners, Menlo Park; New land Pacific Equity Partners, M.H.M & Co. and Enterprise Associates, Baltimore; Robertson Primus Venture Partners, all of Cleveland. Stephens, San Francisco; Marsh & McLennan Capi- tal Inc., Greenwich, Conn.; and Insight Capital Comdisco Inc. Partners and Morgan Stanley Dean Witter Equity Through its venture arm, Comdisco Ventures, this Funding Inc., New York. Tom Bevilacqua, E*Trade’s Rosemont, Ill., provider of technology management executive vice president for corporate development, provides equity financing for Telocity Inc., Cupertino, joins LoanCity’s board. Calif. (See item under NBC Corp. for details.) Electronic Arts Inc. Digital Microwave Corp. The Redwood City, Calif., game developer makes a The San Jose supplier of radio equipment leads a $25 minority investment in Bottle Rocket Inc., New million round for Ensemble Communications Inc., York, which develops and distributes online interac- San Diego, which supplies next-generation broad- tive entertainment. band wireless access equipment. Others investing include Intel Corp., Santa Clara, Calif.; Korea Excite@Home Corp. Telecom Bank Venture Capital; Enterprise Part- The Redwood City, Calif., provider of Internet ser- ners, San Diego; ADC Telecommunications Inc., vices invests in Vstream Inc., Boulder, Colo. (See Minnetonka, Minn.; Crescendo Ventures, Minne- item under General Electric Co. for details.) apolis; and Trinity Ventures and Institutional Ven- ture Partners, both of Menlo Park.

The Corporate Venturing Report PREMIERE ISSUE 15 Global Crossing Ltd. Through its venture arm, Global Crossing Ventures, Continued Corporate Deals the Bermuda telecommunications company invests in Sonus Networks Inc., Westford, Mass., which pro- Ford Motor Co. vides carrier-class packet telephony equipment and The Dearborn, Mich. auto maker invests in Bolt Inc., services. Other investors in the $23 million round New York. (See item under America Online for de- include Williams Communications, Tulsa, OK.; Bed- tails.) rock Ventures, San Francisco; Bessemer Venture Partners, Wellesley Hills, Mass.; Samsung Corp., General Instrument Corp.. Seoul, South Korea; Mitsubishi Corp. and Nissho Electronics Corp., both of Tokyo; and Charles River The Horsham, Pa., provider of broadband access Ventures, Matrix Partners and North Bridge Ven- solutions invests $7 million in Diva Inc., Los Ange- ture Partners, all of Waltham, Mass. les, which develops video-on-demand products for the cable television industry. Hikari Tsushin Inc. General Electric Co. The Tokyo information and telecommunication service distributor invests in: The Stamford, Conn., diversified service, technology Medsite.com Inc., New York. (See item under and manufacturing company invests through its ven- Reuters Group plc for details.) ture arm, GE Equity, in: Global Sight Corp., San Jose, which provides E-Steel Corp., New York. (See item under E.I. e-commerce services. Others participating in the $12.9 DuPont de Nemours & Co. for details.) million round include J.H. Whitney, Stamford, Conn.; Evoke Software Corp., San Francisco, which Draper Fisher Jurvestson, Redwood City, Calif.; provides data profiling and mapping services to re- and 3i Group plc, London. duce the time required for information technology projects. Other investors include Axiom Venture Inktomi Corp. Partners, Hartford, Conn., and Wheatley Partners and RRE Investors, both of New York. The Foster City, Calif., developer of Internet software InfoLibria Inc., Waltham, Mass., which pro- invests $6 million in Digital Island Inc., San Fran- vides Internet content delivery and management cisco. (See item under Sun Microsystems Inc. for systems. Sandler Capital Management, New details.) York, leads the $50 million equity financing. Oth- ers taking part in the financing include Madison Itochu Corp. Dearborn Partners, Chicago; Boston Millennia The Tokyo manufacturer invests in Asera Inc., Red- Partners, Boston; Adams Capital Management wood City, Calif. (See item under Cisco Systems Inc. Inc., Sewickley, Pa.; TeleSoft Partners, San Fran- for details.) cisco; NTT Communications Corp., Tokyo; PSINet Inc., Herndon, Va.; and Patricof & Co. Intel Corp. Ventures Inc. and CIBC Capital Partners, both of New York. The Santa Clara, Calif., semiconductor company has added the following companies to its portfolio: Paytrust.com, Princeton, N.J. (See item under American Express Co. for details.) Asera Inc., Redwood City, Calif. (See item under Cisco Systems Inc. for details.) Pink Dot Inc., Camarillo, Calif. (See item under St. Paul Companies Inc. for details.) Colorado MicroDisplay Inc., Boulder, Co., which manufactures and supplies microdisplays. 3i Telocity Inc., Cupertino, Calif. (See item under NBC Corp. for details.) Technology Partners, Palo Alto, Calif., co-invests in the $5 million financing. Vstream, Boulder, Colo., which provides communication services. Other investors in the $100 Connected Corp., Framingham, Mass., which million round include Excite@Home Corp., Red- uses the Internet to deliver automatic repairs and wood City, Calif.; Nexus Group LLC, San Fran- recovery solutions to PCs. Investors in the $23.5 cisco; Softbank Venture Capital, San Jose, Highland million round are Fidelity Ventures, Boston; Capital Partners, Boston; Centennial Funds, Den- Hambrecht & Quist LLC, San Francisco; Softbank ver; Matsushita Electric Industrial Co. Ltd., Osaka, Technology Ventures, San Jose; Baker Capital Japan; Viventures Capital, San Mateo, Calif.; and Corp., New York; and Applied Technology, Lex- Pequot Capital, Westport, Conn. ington, Mass. CopperCom Inc. ., Santa Clara, Calif., which

16 The Corporate Venturing Report PREMIERE ISSUE is developing equipment to carry voice and high- from a group that includes APV Technology Part- speed data over DSL lines. CopperCom raises $30 ners, Menlo Park; VantagePoint Venture Partners, million from a group that includes Technology Cross- Palo Alto; Marriott International Inc., Washing- over Ventures, Palo Alto, Calif.; Crescendo Ven- ton, D.C.; and Third Coast Capital and BankOne tures, Minneapolis; Hambrecht & Quist LLC, San Corp., Chicago. Francisco; Advent International Corp., Boston; Morgan Stanley Dean Witter Venture Partners, International Data Group C.E. Unterberg Tobin and Patricof & Co. Ven- Through its venture arm, IDG Ventures, the tures Inc., all of New York; and JK&B Capital and Framingham, Mass., information company invests in Kettle Partners, both of Chicago. PlanSoft Corp., Cleveland. (See item under Comcast Cronos Integrated Microsystems Inc., Re- Corp. for details.) search Triangle, N.C., which designs and fabricates so-called MEMS components. MEMS, which stands for micro-electro-mechanical systems, uses estab- ITurf Inc. lished semiconductor fabrication techniques to build The New York provider of online sites for people mechanical structures on the surface of a microchip. aged 10 to 24 invests in Multitude Inc., South San SpaceVest Management Group Inc., Reston, Va., Francisco, Calif. (See item under CNET for details.) leads the $8 million round, which includes Knickerbocker LLC, Gladstone, N.J. J.D. Edwards & Co. Cyber India Online Ltd., Bangalore, India, The Denver software company invests in Tradex which operates a Web site providing news and infor- Technologies Inc., Atlanta. (See item under Chemdex mation for information technology professionals. The Corp. for details.) amount was not disclosed. Ensemble Communications Inc., San Diego. (See item under Digital Microwave Corp. for details.) Kingston Technology Corp. Financial Engines Inc., Palo Alto, Calif. (See The Fountain Valley, Calif., manufacturer of memory item under E*Trade Group Inc. for details.) products invests in Amplify.net Inc., Fremont, Calif. Giganet Inc., Concord, Mass., which develops (See item under 3Com Corp. for details.) and markets switching equipment that links servers and allows the capacity of server farms to be increased LVMH Moet Hennessy Louis as needed. Investors in the $19 million round include Vuitton Hambrecht & Quist Ventures, San Francisco, Merrill Lynch & Co., New York, and Telesystem The Paris seller of luxury goods teams up with Software Ventures, Montreal, Quebec. Europ@web, also of Paris, to put $122 million into iPass Inc., Mountain View, Calif., which pro- Oxygen Media Inc., New York, which is developing vides remote Internet access. iPass raised $21 million brand content for women on the Internet and cable from a group that includes Crosspoint Venture Part- television. Europ@web was established by Group ners, Woodside, Calif., and Accel Partners and Arnault, the private holding company that controls Meritech, both of Palo Alto. LVMH. Loudeye Technologies Inc., Seattle, (See item under America Online Inc. for details.) Mapinfo Corp. Microcosm Technologies Inc., Cary, N.C., The Troy, N.Y., provider of business intelligence which provides MEMS development solutions for solutions invests in NearMe, also of Troy, N.Y., automotive, telecommunication, biomedical and con- which uses MapInfo technology to help consumers sumer electronic products. Financial terms were not find goods, services and events near them. disclosed. mySimon Inc., Santa Clara, Calif., which op- Marriott International Inc. erates an e-commerce hub for comparison shopping. The e-Citi unit of Citigroup also invests in the round. The Washington, D.C., hospitality company takes The size of the financing was not disclosed. part in the funding of STSN, Salt Lake City. (See item Orchestream, London, which develops policy- under Intel Corp. for details.) based service management software. PacketVideo Corp., San Diego. (See item Microsoft Corp. under Reuters Group plc for details.) The Redmond, Wash., software company invests in STSN, Salt Lake City, which provides high- Loudeye Technologies Inc., Seattle. (See item under speed technology and services for vertical markets. America Online Inc. for details.) The company raised $55 million in debt and equity

The Corporate Venturing Report PREMIERE ISSUE 17 based information. Peter Buhl, a partner with Nokia Ventures, joins NetSanity’s board. Corporate Deals Continued NTT Communications Corp. Mitsubishi Corp. The Tokyo phone carrier invests in InfoLibria Inc., General Electric The Tokyo trading company invests in: Waltham, Mass. (See item under Co. for details.) E-steel Corp., New York. (See item under DuPont for details.) Kinzan.com, Carlsbad, Calif., which provides Office Depot Inc. e-commerce services for deploying and managing The Delray Beach, Fla., office product retailer very large networks of Web sites. The $15.5 million, participates in the $32 million financing of mezzanine round is led by Menlo Ventures, Menlo DigitalWork.com Inc., Chicago, an online agency Park, and includes participation from Vital Process- geared toward assisting the small office/home of- ing Services, Tempe, Ariz.; Pulsar Internacional fice market. Attractor Investment Management, group of companies, Mexico; and ARES Interna- Burlingame, Calif., leads the round. Other inves- tional, Taiwan. tors include Draper Fisher Jurvetson, Redwood Sonus Networks Inc., Westford, Mass. (See City, Calif.; TL Ventures, Wayne, Pa.; Informa- item under Global Crossing Ltd. for details.) tion Technology Ventures, Menlo Park; Mail Boxes Etc., San Diego; PurchasePro.com Inc., Mitsui & Co. Las Vegas; and Reckson Service Industries, New The Tokyo trading company, through its U.S. affili- York. ate, Mitsui & Co. USA, invests in E-Steel Corp., New York. (See item under DuPont for details.) Pacific Century Cyberworks The Hong Kong provider of broadband Internet ser- NBC Corp. vices invests in NetCel360 Ltd., Hong Kong. (See item under United Parcel Service of America Inc. for The New York broadcasting company invests in: details.) Loudeye Technologies Inc., Seattle. (See item under America Online Inc. for details.) Telocity Inc., Cupertino, Calif., which pro- PSINet Inc. vides high-velocity broadband Internet services for The Herndon, Va., provider of Internet access invests residential markets. The company raises $127.5 mil- in InfoLibria Inc., Waltham, Mass. (See item under lion in a funding that includes GE Equity, Stamford, General Electric Co. for details.) Conn.; ValueVision International Inc., Eden Prarie, Minn.; Bessemer Venture Partners, Wellesley Purchasepro.Com Inc. Hills, Mass.; Comdisco Inc., Rosemont, Ill.; The Las Vegas provider of business-to-business e- Stanford University, Stanford, Calif.; August Capi- commerce services participates in the financing of tal and Mohr, Davidow Ventures, both of Menlo DigitalWork.com Inc., Chicago. (See item under Park; and RRE Investors, Bessemer Holdings, Office Depot Inc. for details.) L.P. and Soros Private Equity Partners LLC, all of New York. Qualcomm Inc. Nissho Electronics Corp. The San Diego developer of products for wireless systems invests in PacketVideo, San Diego. (See The Tokyo technology company invests in Sonus item under Reuters Group plc for details.) Networks Inc., Westford, Mass. (See item under Global Crossing Ltd. for details.) Reckson Service Industries Nokia Corp. The New York business service provider invests in DigitalWorks.com Inc., Chicago. (See item under The Finnish mobile communication company through Office Depot Inc. for details.) its venture arm, Nokia Ventures, invests in: Informative Inc., South San Francisco, Calif. which provides online information services. The size Reuters Group plc of the financing is not disclosed. Through its venture arm, Reuters Greenhouse Fund, NetSanity Inc., Redwood City, Calif., which the London-based provider of information invests in: creates software to deliver, notify and manage Web- Medsite.com Inc., New York, which sell medi-

18 The Corporate Venturing Report PREMIERE ISSUE cal books, journals and supplies, as well as provides PacketVideo Corp., San Diego. (See item under medical news and physician credentialing. Other in- Reuters Group plc for details.) vestors in the $55.7 million round include Goldman Sachs Group Inc.; Morgan Stanley Dean Witter Singapore Technologies Group Venture Partners; Chase Capital Partners and Through its venture arm, Vertex Management Inc., Weiss, Peck & Greer LLC, all of New York; Bain the conglomerate invests in Belle Systems A/S, Capital Inc., Boston; Tenet Healthcare Corp., Santa Holbaek, Denmark. (See item under Cisco Systems Barbara, Calif.; and Hikari Tsushin Inc., Tokyo. Inc. for details.) PacketVideo Corp., San Diego, which develops wireless multimedia software and services for multiple applications. Other investors in the $21 mil- Sony Corp. of America lion round are Credit Suisse First Boston and Sony The entertainment company invests in PacketVideo Corp. of America, both of New York; Intel Corp. Corp., San Diego. (See item under Reuters Group plc and Siemens Mustang Ventures, both of Santa Clara, for details.) Calif.; Nexus Group LLC, San Francisco; and Qualcomm Inc., San Diego. St. Paul Companies Inc. Virage Inc., San Mateo, Calif., which has Through its venture arm, St. Paul Venture Capital developed an Internet video search engine. Reuters Inc., the Minneapolis insurer invests in: leads the $20 million round, which includes Weston Adaytum Software, Minneapolis, which sup- Presidio Capital, Boston; Adobe Ventures, San plies business planning applications. St. Paul Venture Francisco; Neocarta Ventures, Cambridge, Mass.; Capital leads the $6.1 million round, with additional Media Technology Ventures, Los Altos, Calif.; and participation from Hambrecht & Quist LLC, San Sutter Hill Ventures and Trinity Ventures, both of Francisco. Menlo Park. OfficeClick.com Inc., Palo Alto, which has developed an online workcenter for office adminis- SAP AG trative professionals. Others participating in the $30.5 Through SAP Ventures, the Walldorf, Germany, million round are Spectrum Equity Investors, Palo software company makes equity investments in: Alto; Forrest Binkley & Brown, Newport Beach, BlindGift.com Inc., San Francisco, an online Calif.; and Doll Capital Management, InterWest gift service. The round totals $2.5 million. Partners and Sigma Partners, all of Menlo Park. iD2 Technologies, Stockholm, Sweden, which Pink Dot Inc., Camarillo, Calif., which pro- develops and sells products to increase security on the vides grocery and prepared food delivery service. Internet. Others involved in the $20 million financing include Sequencia Corp., Phoenix, which develops au- GE Equity, Stamford, Conn.; William Blair Capital tomation and integration solutions for manufacturers. Partners, Chicago; Graystone Venture Partners, Northfield, Ill.; Brand Equity Ventures, Green- Samsung Corp. wich, Conn.; and Corber Corp., Wayne, N.J. The Seoul, South Korea, electronics conglomerate takes stakes in: Starbucks Coffee Co. iAsiaWorks, San Mateo, Calif. (See item un- The Seattle coffee retailer takes a stake of undisclosed der Bechtel Group for details.) size in Cooking.com Inc., Santa Monica, Calif., an Sonus Networks Inc., Westford, Mass. (See online seller of cookware and specialty foods. item under Global Crossing Ltd. for details.) Sun Microsystems Inc. Sara Lee Corp. The Palo Alto, Calif., technology company invests in: The Chicago manufacturer and marketer of consumer Digital Island Inc., a publicly traded, San products takes part in a $12 million round raised by Francisco-based provider of Internet hosting services. MadeToOrder.com Inc., Redwood City, Calif., an Sun invests $20 million, while Inktomi Corp., Foster online source of logo merchandise. Other investors in City, Calif., puts in $6 million. the round are Alloy Ventures, Palo Alto, Calif., and ExpertCity.com Inc., Santa Barbara, Calif., Alpine Technology Ventures, Cupertino, Calif. which has developed an online marketplace for ex- pert-assisted help and learning. Sun co-leads the $30 Siemens AG million financing with ZDNet, San Francisco. Other investors include Bertelsmann Ventures, Santa Bar- Through its venture arm, Siemens Mustang Ven- bara, Calif., and Dawntreader, L.P., New York. tures, the German electronics company invests in

The Corporate Venturing Report PREMIERE ISSUE 19 Valuevision International Inc. The Eden Prairie, Minn., operator of a home shopping Continued Corporate Deals network invests in Telocity Inc., Cupertino, Calif. (See item under NBC Corp. for details.) Tenet Healthcare Corp. The Santa Barbara, Calif., hospital company invests Williams Communications in Medsite.com Inc., New York. (See item under The Tulsa, Okla., telecommunications company in- Reuters Group plc for details.) vests in Sonus Networks Inc., Westford, Mass. (See item under Global Crossing Ltd. for details.) Texas Instruments Inc. The Dallas semiconductor company, through its ven- Wi-LAN Inc. ture arm, TI Ventures, invests in Covalent Tech- The Calgary, Alberta, developer of wireless net- nologies Inc., Lincoln, Neb. (See item under Adobe working technologies invests in Amplify.net Inc., Systems Inc. for details.) Fremont, Calif. (See item under 3Com Corp. for details.) 3com Corp. The Santa Clara, Calif., networking company, ZDNet through its venture arm, 3Com Ventures Inc., in- The San Francisco provider of technology informa- vests in: tion to online users co-leads a $30 million round for Amplify.net Inc., Fremont, Calif., which de- ExpertCity.com Inc., Santa Barbara. (See item un- velops broadband access enabling services. Co-in- der Sun Microsystems Inc. for details.) vestors in the $6.1 million round include Wi-LAN Inc., Calgary, Alberta; Kingston Technology Corp., Fountain Valley, Calif.; Alpine Technology Ven- tures, Cupertino, Calif.; and Aspen Ventures, Los Altos, Calif. XL Ventures to Stay Active Coactive Networks Inc., Sausalito, Calif., After Big Flower Buyout which connects open control systems to Internet technologies. Other investors in the $14 million financing Big Flower Holdings Inc., the New York advertising are Chase Capital Partners, New York; Charter and marketing company, may no longer be publicly Venture Capital, Palo Alto, Calif.; and Techfarm, traded, but its venture subsidiary, XL Ventures, will Mountain View, Calif. Janice Roberts, senior vice remain in full bloom. president of business development at 3Com and presi- Big Flower, formerly traded on the New York dent of 3Com Ventures, joins Coactive’s board. Stock Exchange, was taken private in December in a $1.9 billion acquisition by its chairman, R. Time Warner Inc. Theodore Ammon, and buyout firms Thomas H. The New York cable TV operator and publisher Lee Co., Boston, and Evercore Partners L.P., New invests in Bolt Inc. (See item under America Online York. Inc. for details.) The three parties will seek to “aggressively grow” all aspects of the company’s business, including XL United Parcel Service of Ventures, said Anthony J. DiNovi, a managing director with Thomas H. Lee Co. America Inc. However, Mr. DiNovi said, XL now will get its Through its Strategic Enterprise Fund, the Atlanta capital from the new shareholders, rather than from package delivery company takes an equity position in Big Flower, to eliminate the impact on cash flow. NetCel360 Ltd., Hong Kong, which provides Inter- Since its formation in 1998, XL Ventures has net-based e-commerce outsourcing solutions. Pacific invested approximately $40 million in companies that Century CyberWorks Ltd., Hong Kong, also invests. use the Internet to provide advertising, marketing and business-to-business services. U.S. Office Products Co. XL invests at all stages, and uses its parent’s company expertise to help portfolio companies with The Washington, D.C., seller of office and educa- advertising and marketing issues. tional products invests, through subsidiary Mail Boxes Reach XL Ventures Managing Director Kristopher Etc., in DigitalWork.com Inc., Chicago. (See item A. Wood at (212) 521-1600. under Office Depot Inc. for details.)

20 The Corporate Venturing Report PREMIERE ISSUE road blocks that could otherwise restrict our ability to Investors Flock to Equinix rapidly address our customer needs,” says E*Trade’s Mr. Bevilacqua. Continued from page 1 “In terms of our goals for speed and reliability, Michael Malaga, chairman and CEO of NorthPoint they are aligned with us from a philosophical stand- Communications Inc., a San Francisco local ex- point,” he says. “And from a financial standpoint, change carrier that invested in the latest round. they are already being well received, so it made Indeed, it is still common for Internet users to enormous sense” for E*Trade to invest. suffer long waits as information winds its way to their A second plus was that the company’s founders— computers from servers thousands of miles away. Mr. Avery and Jay S. Adelson—were responsible for Along the route—both coming and going—the data designing, building and operating the Palo Alto Inter- passes through dozens of so-called network access net Exchange, which quickly became an active Inter- points, which are key connection points that often turn net traffic exchange point. into bottlenecks. All told, Equinix now has raised $315 million By allowing Internet companies to cluster their since its founding in June 1998, making it one of the servers and data at points closer to end-users, Equinix most heavily financed Internet infrastructure compa- intends to speed the flow of data. But such an effort nies ever. takes money and connections—two things that corpo- Additional Capital Needed rations possess in abundance. “We wanted to form partnerships around the world According to documents filed with the Securities that would catapult our business,” says Albert M. and Exchange Commission, Equinix expects to be Avery IV, Equinix’s CEO and president. able to build a total of eight Internet Business Ex- changes with the capital it has raised so far. However, Capital and Connections it expects to need another $750 million over the next The other corporate investors in the round in- four years to carry out its plan of building 30 excluded Artemis S.A., a French holding company that, changes. among other things, owns auction house Christies The company currently has two exchanges, one in International plc; E*Trade Group Inc., Menlo Park; Ashburn, Va., near Washington, D.C., and another in Enron Corp., the Houston energy and communica- Newark, N.J. By April, it intends to open exchanges tions company; News Corp., Sydney, Australia; Pa- in San Jose and Los Angeles. cific Century CyberWorks Ltd., a Hong Kong-based Equinix will generate revenue by leasing cabinet Internet company; and Reuters Group plc, London. space and by making direct interconnections between “The company did a superb job of getting out in customers. In addition, the company intends to offer front of the corporate investors and making their value a variety of services, including equipment installation proposition and name known,” says Tom Bevilacqua, and maintenance. E*Trade’s executive vice president for corporate development. Also participating in the financing were Marc Times Mirror Becomes LP Andreessen, the co-founder of Netscape Communi- cations Corp., which is now part of America Online; In Fund of Former Team Carlyle Group, the Washington, D.C., private equity firm; Benchmark Capital, the Menlo Park venture Times Mirror Co.’s direct-investment team has left firm; and Temasek Holdings, a Singapore institu- the Los Angeles publishing giant to manage a $550 tional investor. million independent private equity fund backed by Times Mirror and the Chandler Trusts. ‘Neutral’ Meeting Place The Chandler Trusts are the biggest shareholders According to Cambridge, Mass.-based Forrester in Times Mirror, which publishes the Los Angeles Research, revenue from Internet-related hosting and Times, the Baltimore Sun and other newspapers. co-location services will jump to an estimated $14.7 TMCT is managed by Rustic Canyon Group, billion by 2003 from $875 million in 1998. And, while also of Los Angeles. The managing general partner is Equinix is not the only company building such cen- Tom Unterman, who until last month was Times ters, it does have an edge over telecommunication Mirror’s chief financial officer. carriers and Internet service providers in that it is TMCT intends to make investments of $3 million to providing a “neutral” meeting place. $10 million in information technology and business “For content or service providers such as our- services companies related to telecommunications, IT selves, they allow us to connect to the Internet in such infrastructure and the Internet in Southern California. a way that it minimizes or eliminates the number of Reach TMCT at (213) 237-3881.

The Corporate Venturing Report PREMIERE ISSUE 21 $4.1 million for the stake in the Austin, Texas, provider of networking routers, itself earned just $15 Venture Holdings Can Boost Valuations million on revenue of $223 million in the fiscal year Continued from page 1 ended last October. their share-price estimates. But that might be about to Corporate executives, with some justification, see change. A growing number of corporations hold ven- a precedent for trying to unlock the value of their ture portfolios with potentially eye-popping valua- venture holdings in publicly traded venture capital tions. And more and more of them are considering companies like CMGI Inc. and Internet Capital Group ways to call those holdings to Wall Street’s attention. Inc. The shares of those companies have soared as Consider the following: stock market investors conclude they offer a novel • Comdisco Inc., the Rosemont, Ill., provider of way to play the venture capital market, from which technology services, plans to create a so-called “track- they normally are excluded. ing stock” for its venture capital unit, Comdisco “Two things are converging,” says Steve M. Ventures. Johnson, president of Seattle-based Tredegar Invest- • CBS Corp., the New York broadcasting com- ments. “The first is that there are a lot of [corporations pany, has discussed setting up a separate, publicly investing]. And, if you do it long enough, there is traded company that would include its Internet as- value” in the portfolio. sets, including its direct investments. (See story on “The other thing,” Mr. Johnson says, “is that there page 6.) are individual investors who can’t play effectively in • Tredegar Corp., the Richmond, Va., manufac- the institutional venture arena, but who are interested turer, is evaluating the spin-off of two of its business in venture capital.” units and its venture arm, Tredegar Investments, into Twin Benefits an independent company. As a result, he says, corporations can benefit from • Apple Computer Inc., Cupertino, Calif., holds their venture investments not just strategically, but a stake worth nearly $1 billion in newly public Akamai financially as well. The key, he says, is that they “must Technology Inc., Cambridge, Mass. Apple, which communicate effectively what they are doing.” posted net income of $601 million on revenue of $6.1 That is clearly Comdisco’s goal in moving to billion in its last fiscal year, paid $15 million for the establish a tracking stock for Comdisco Ventures. Akamai stake. Formed in 1987, the venture subsidiary has commit- • Advanced Digital Information Corp., a ted over $1.7 billion to nearly 700 young companies. Redmond, Wash., developer of networking products, Last year alone, Comdisco Ventures generated owns a stake in publicly traded Crossroads Systems $71 million in pre-tax earnings and $229 million in Inc. valued at nearly $200 million. ADIC, which paid revenue. At year-end, the publicly traded securities in Comdisco Ven- tures’ portfolio were worth more than Value Generated by Corporations Through 4th Quarter IPOs $400 million. “We didn’t think Wall Street or Apple Computer $1.3 billion Akamai the investing world was identifying Cisco Systems $1.2 billion Akamai; Predictive Systems the value of the venture division in Intel Corp. $945 Silicon Image; Crossroads System; Immersion the stock price of Comdisco,” says Corp.; Smarterkids.com; VA Linux Systems United Technologies $559 Freemarkets James P. Labe, a managing director Reuters Ltd. $373 InterTrust Technologies; Aether Systems with Comdisco Ventures. “This Microsoft $367 E-Stamp; Data Return Corp., Akamai seemed to be a great way to unlock United Airlines $294 Getthere.com that value.” Advanced Digital $216 Crossroads Systems Analysts who follow Comdisco 3Com $183 Aether Systems endorse the tracking stock idea. “It’s American Express $143 Getthere.com; Exactis the right move,” says Mark C. Jor- DirectTV $129 XM Satellite Radio dan, a vice president at A.G. Edwards Level3 Comm. $100 Data Return Corp. & Co. “There is tremendous value 0 $300 $600 $900 $1,200 $1,500 there.” ($ in millions) The tracking stock IPO process will be “educational” for analysts, Based on value of shares held by corporations minus original equity investment. Calculated using Mr. Jordan says, because it will help SEC filings and share price of company as of 12/31/99. Does not include stakes that corporations them understand the value in the port- acquired through spinoffs or transfers of technology or assets. folio. Copyright © 2000 Asset Alternatives Inc. The process is likely to be educa-

22 The Corporate Venturing Report PREMIERE ISSUE tional as well for other corporations, some of which may choose to follow Comdisco’s lead. Corporations with Multiple IPOs in Fourth Quarter

Others Follow Lead AT&T Corp.: E-Stamp Corp., Triton PCS Holdings Inc., Tritel Inc. Already, Creative Technology Ltd., a Singapore America Online Inc.: The Knot, E-Stamp Corp. multimedia firm, is considering a separate listing for American Express Co.: GetThere.com Inc., Exactis.com Inc. its venture capital firm, according to published statements by Chairman Sim Wong Hoo. Creative, which Cisco Systems Inc.: Akamai Technologies Inc., Predictive Systems Inc. allocated $100 million to its venture unit in 1999, has Comdisco Inc: Be Free Inc., Virata Corp. scored big with an investment in MediaRing.com Inc. Compaq Computer Corp.: Data Return Corp., E-Stamp Corp. Likewise, Trans Cosmos Inc., a Tokyo informa- Dell Computer Corp.: Calico Commerce Inc., NaviSite Inc., ZapMe! Corp. tion system consulting firm, is giving thought to a tracking stock for its venture capital unit, says Steve E*Trade Group Inc.: Official Payments Corp., PlanetRx.com Inc., Clemons, a managing director of TransCosmos USA WebVan Group Inc. Inc. in Bellevue, Wash. Excite@Home Corp.: E-Stamp Corp., Harris Interactive Inc., Tickets.com Inc. One company that probably could issue a tracking Intel Corp.: Crossroads System Inc., FogDog Inc., Immersion Corp., stock for its venture holdings quite successfully is Silicon Image Inc., Smarterkids.com Inc., VA Linux Systems Inc. Intel Corp., Santa Clara, Calif. MediaOne Group Inc.: eCollege.com Inc., Women.com Networks Inc. Last year alone, the semiconductor producer made Microsoft Corp.: Akamai Technologies Inc., Data Return Corp., more than $1 billion in venture investments. At year’s E-Stamp Corp., Expedia Inc., NaviSite Inc. end, Intel’s 350-company venture portfolio had a Oracle Corp.: C-Bridge Internet, Virata Corp. value of $8 billion. Intel recognized $327 million in gains on the sale of securities in the fourth quarter, Reuters Ltd.: Aether Systems Inc., InterTrust Technologies Corp. when it reported record revenue of $8.1 billion. Singapore Technologies Inc.: Chartered Semiconductor Manufac- Yet, spokesman Robert Manetta says Intel has “no turing Inc., FogDog Inc., Gric Communications Inc., QuickLogic Corp. current plans” to set up a tracking stock for its venture Yahoo! Inc.: Deltathree.com Inc., WebVan Group Inc. activity. “We aren’t looking for financial returns,” Mr. Manetta says. “Our key goals are to be a strategic Copyright © 2000 Asset Alternatives Inc. investor, and to make investments in a lot of different areas.” credit for their venture holdings just by calling them Indeed, the long-held view of Wall Street is that to analysts’ attention, usually in quarterly statements the strategic value realized from corporate venturing but also in conference calls. is far more important than any financial gains. Addi- tionally, analysts consider such gains as meaningless Akamai Polishes Apple until they are realized. And then, they are considered Apple did so in its last annual report, trumpeting non-recurring items. its holdings in Akamai, which provides services for However, tracking stocks are not the only tools accelerating the delivery of Internet content. The corporations are considering to unlock the value of holdings are particularly significant because they their venture investments. Some companies, such as represent close to 10 percent of Apple’s enterprise CBS and Tredegar, are evaluating whether to spin off value, says Robert Chen, an analyst at ABN AMRO, their venture investments into entirely separate com- San Francisco. panies. Likewise, analysts took note when Advanced Digi- tal Information drew attention in its latest quarterly Convincing the Skeptics financial statements to its stake in Crossroads Sys- Tredegar’s Mr. Johnson says the company is con- tems. sidering such a move because analysts, in examining The Crosspoint stake effectively boosts the value the company’s performance, all but ignore the ven- of Advanced Digital’s stock by as much as 10 percent, ture portfolio. says Bill Lewis, an analyst with Chase H&Q, San “There is a ‘show-me’ mentality,” he says. “They Francisco. The stock recently was trading at $61.88, say, ‘Prove to me you can generate liquidity. Prove close to its 52-week high. you can do it on a regular basis.’” Mr. Lewis says he and other analysts will have to Tredegar is seeking greater recognition for its look more closely at the investment portfolios of the venture holdings because many of the portfolio com- companies they cover. panies are nearing an IPO or trade sale. “The reason to get into a company is for strategic Last year, Tredegar Investments committed about benefits,” he says. “But, if along the way, you can get $80 million to 18 companies. something that adds $200 million, that’s not too bad.” To be sure, some corporations are seeking to gain By David G. Barry

The Corporate Venturing Report PREMIERE ISSUE 23 wood Shores, Calif., formed a $100 million venture fund to invest primarily in companies that use Oracle’s Corporate Venture Capital Soars software. Continued from page 1 The second notable trend is that long-established and EMC Corp., Hopkinton, Mass. When the invest- corporate venture investors are seeking to leverage ment pools of all such companies are included, the their expertise by raising capital from outside investors. total amount of money dedicated to new corporate For example, Intel Corp., Santa Clara, Calif., put venture capital programs last year is likely to ap- $50 million of its own capital into the $250 million proach or exceed $10 billion. Intel 64 Fund LLC. Intel raised the balance from Indeed, corporate venturing is no longer a novelty Dell; Ford Motor Co., Dearborn, Mich.; Compaq but a necessity, according to some observers. Computer Corp., Houston; General Electric Co., “It is part of the ticket to the dance these days,” Stamford, Conn., and other corporations. says Samuel Schwartz, a managing director at This latter trend appears to be accelerating. This year, Comcast Interactive Capital Group, the venture corporations that will court outside capital for their arm of Comcast Corp., Philadelphia. “You need to venture capital funds will include EDS; E*Trade; S.R. continually understand product cycles and what’s One Ltd., the venture arm of Smith Kline Beecham happening with the Internet. A lot of companies are Corp., and the venture arm of Comdisco Inc. realizing that it’s a basic part of doing business.” By David G. Barry In many respects, 1999 likely will be viewed as a watershed year for corporate venturing. For starters, the sizes of new corporate venturing Corporate Venturing Funds programs grew noticeably. Of the 28 corporations Formed in 1999 that disclosed their fund sizes last year, 19 were Corporation Size ($ millions) committing at least $100 million. A year earlier, only Electronic Data Systems Corp. $1,500 five of the 13 announced programs had such heft. Andersen Consulting $1,000 Indeed, 1999 saw Andersen Consulting and Elec- Time Warner Inc. $500 tronic Data Systems Corp. become the first corpo- Intel Corp. $450* rations to announce they intend to invest at least $1 Hikari Tsushin $332 billion in venture transactions. (See stories on pages 5 News Corp. $300 and 4.) MCI WorldCom Ltd., Clinton, Miss., an- ValueVision International $300 nounced a $500 million program—a big fund by any Comcast Corp. $250 measure. PECO Energy Co. $225 Two other new corporate venturing trends also Inktomi Corp. $200 emerged in 1999. Sun Microsystems Inc. $200 Rather than simply looking for technology access TransCosmos Inc. $150 or similar strategic benefits, more corporations are using their venturing programs to promote their own Cambridge Technology Partners Inc. $100 services and products. Duchossois Enterprise Group $100 For example, both Andersen Consulting and EDS E*Trade Group Inc. $100 intend to invest in clients that use their systems Global Crossing Ltd. $100 integration consulting services. Oracle Corp., Red- Oracle Corp. $100 Readers Digest Association $100 Rare Medium Group Inc. $87 Corporations With Venturing Programs Lycos Inc. $72 225 203 InfoSpace.com Inc. $30 200 Seagate Technology Inc. $25 175 Broadvision Inc. $10 150 Cognex Corp. $10 125 108 Freedom Communications Inc. $10 100 Venture Catalyst.com Inc. $10 75 70 Fujisawa Pharmaceutical Co. $5 49 50 Total Announced: $6,259 25 * Includes $250 million for Intel 64 Fund LLC and 0 1996 1997 1998 1999 $200 million for Intel Communications Fund, which are separately managed. Copyright © 2000 Asset Alternatives Inc. Source: The Corporate Venturing Directory & Yearbook

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