|Industry||Business-to-business venture capital|
In early 1996, Safeguard Scientifics executives Ken Fox and Walter Buckley spotted an emerging market in business-to-business e-commerce, or B2B as it would become known. They left their former employer to found Internet Capital Group (ICG), a venture capital firm aimed at this new business sector. Buckley explained, "We liked B2B because we knew who the customers were and could see they would be easier to lock in than consumers. B2B is grimy and dirty, but you can make a lot of money at it." The pair asked Safeguard head Pete Musser for $5 million in funding, but he insisted on investing $15 million. By May when initial funding completed, Buckley and Fox had raised $40 million to start ICG, twice what they had hoped for. In addition to Safeguard, major investors included Comcast, Compaq, and BancBoston Ventures, and a dozen or so individuals. Initially, the company was organized as an limited-liability corporation.
Following the "keiretsu" model used by Safeguard, ICG would be heavily involved in the operations of the companies it invested in, and the start-ups would do business with each other, increasing the value of all parties. Its annual meetings would become opportunities for CEOs to share their experiences and cut new deals. One member CEO called it "a perfect way to manage chaos." One of ICG's first investments was a website called Water Online. Under the guidance of ICG, Water Online brought in Mark Walsh, head of AOL's B2B division, in late 1997 to run the company. The company became VerticalNet, expanded into 47 different industries, and became one of the first B2B companies to go public.
Spurning opportunities to invest in promising business-to-consumer companies such as CDNow and AutoWeb, ICG impressed its core audience and developed a reputation as "the VCs to see if you were an entrepreneur with a B2B idea." GE Capital joined many of the original investors in contributing to a second round of financing in July 1998 which generated another $70 million. Early investments began to pay off and ICG generated additional funds by selling off some of its positions. However, unlike traditional venture capitalists, Buckley and Fox envisioned that ICG would hold most of its investments long term (ten years or longer). The duo were ambitious, aiming to have a stake in 80% of the B2B market, and saw ICG as the "GE of e-commerce" – they wanted each of their investments to be a top two player in their market. To support this goal, ICG aggressively hired top talent from companies such as Microsoft, McKinsey & Co., and GE itself. The work environment was casual, or as one partner company CEO called it "almost like a fraternity."
By fall of 1998, ICG began considering an initial public offering (IPO). It went on a hiring spree to beef up its profile, hiring executives away from Cambridge Technology Partners, Heidrick & Struggles, McKinsey, and Softbank. After much effort, Fox persuaded Sam Jadallah, Microsoft's chief of enterprise sales and marketing, to join. In February 1999, the decision was made to go public and ICG converted to a regular corporation that month. In May, $90 million of additional funding was raised through a convertible bond issue. In August, the IPO was completed through Merrill Lynch, becoming listed on the NASDAQ under the symbol ICGE. The symbol was chosen in reference to ICG's goal of being the next General Electric ("I see GE").
ICG sold 14.9 million shares in the offering at $12 per share, and simultaneously sold another 7.5 million shares privately to IBM, generating more than $200 million total. Dell Computer bought 1 million of the IPO shares, and wanted more. High profile investors now included Amerindo Investment Advisors, the Saudi royal family, the Penske family, and David Bonderman. Safeguard was the largest stakeholder.
At the time of the IPO, ICG held stakes in 35 companies. About half the businesses aimed to create online marketplaces or communities, while the other half were software makers and other companies building the infrastructure to meet the needs of the marketplace companies. ICG's business model was exciting to analysts – Fortune Magazine called it "a one-stock way to play the net" – but also extremely difficult to accurately value. Famed analyst Henry Blodget was among its more vocal supporters declaring "Internet Capital has the potential to emerge as the dominant 21st-century operating model for creating shareholder value." He predicted the company's stock would be worth $125 per share within two years based on a 10% share of the B2B e-commerce market.
In the midst of the dot-com bubble, the IPO was a huge success. ICGE doubled in price on its first day, and hit $50 per share in October. Book value of the company, including stakes in VerticalNet and U.S. Interactive which had gone public, was about $1 billion. For no significant revenue, that meant the market was valuing the ICG management team at about $8 billion. The stock continued to rise; by early December it was trading above $80. ICG had by then invested $300 million across 39 start-ups and had a staff of 29 to manage and advise those companies. Operations were split into two locations with Buckley serving as CEO and working out of the Philadelphia area, while Fox managed West Coast operations in San Francisco. Three executives were hired in November to head a new European team.
ICGE stock then proceeded to surge $127 in 12 days to hit $212 a share, a figure that would represent its all-time high. At $212 a share, ICG had a market value of nearly $60 billion. That made it the third largest Internet company by market capitalization behind only AOL and Yahoo. The rise came despite a secondary offering which raised $1 billion in additional capital. Revenue, meanwhile, was meager. During the first nine months after ICG became a corporation, it recorded just $14.8 million of revenue, and a loss of $6.4 million. The previous year, it recorded a profit of $14 million on $3 million of revenue. In an early December (before the stock peaked), Motley Fool analyst Bill Mann remarked "[ICG] is valued very richly on a series of unproven concepts manifested in small, unprofitable companies run by unproven management teams."
By February 1, ICG's stock had retreated nearly $100 in anticipation of insiders selling when their shares would unlock in February. Quick & Reilly filed to sell 300,000 shares while BancBoston Investment filed to sell 500,000. However, dot-com fever remained strong and retail investors bought up insider shares, stabilizing the price. Meanwhile, ICG continued to expand its investments. By early 2000, ICG had invested $1.4 billion in 61 start-up firms, and was forging new partnerships with old economy leaders. For example, ICG took a substantial stake in MetalSite, an online metal exchanged backed by established steelmakers and partner with DuPont to launch CapSpan, an online market place for DuPont's goods. The rapid expansion was motivated by what Fox called "the biggest wealth-creation opportunity the world has ever seen" – finding the promising e-commerce B2B companies before anyone else.
The NASDAQ peaked in March and when dot-com fever began to fade, ICG was especially hard hit. By April, its stock was down to $40 a share and GE Capital filed to sell nearly a million shares. By June, ICGE was down to $30 and by November it hit $10 per share. Buckley, who sold very little of his own stock, remained optimistic. "We have never been more confident of what we're building," he said That month. "The market doesn't know that, but it will." In the Spring of 2001, the stock price fell into single digits and fell below $1 per share in the Summer, putting it in danger of being de-listed by NASDAQ; despite the fall, the company was financially sound with $300 million in the bank. Two years after its peak, ICG had a market capitalization of $200 million, less than 0.5% of its peak value.
ICG survived the crash, and changed its business model. Instead of taking small stakes in many companies, it would invest in a few "core" companies at a time, usually as majority owner. This allowed the company to have much greater control over the operations of its investments. ICGE stock bottomed out in 2008 at $3.27 per share. Stock analyst Jeff Van Rhee commented years later, "Like many people, they got caught up in the implosion of the bubble, but boy, that trial by fire has really honed their abilities". When ICG sold its stake in Channel Intelligence to Google for $125 million in February 2013, the stock had risen by $12 per share.
By September 2014, ICGE was trading in the upper teens and was worth approximately $700 million. In a symbolic break with the past, the company changed its name to Actua Corporation and stock symbol to ACTA in early September. Actua had stakes in three companies – insurance software provider Bolt Solutions, Healthcare.gov developer GovDelivery, and chemical record tracker MSDSonline – at the time of the name change. The three, which all use cloud computing, operated at a collective net loss in 2013 but were primed for rapid expansion, according to analyst Kirk Materne. Actua had $300 million of cash in or future acquisitions.
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