Milestone Matters - Spring 2001 Newsletter

"…It should be clear that human patterns of less-than-perfectly rational behavior are central to financial market behavior, even among investment professionals..."

-- Robert Shiller
Economist and Author of Irrational Exuberance, in a recent essay sent
to investors by the Commonfund Asset Management Company

Editor's Corner

Dear Friends, Investors and Associates,

I am writing to you from the confines of what I can only characterize as a national "pause". No great issues clamor for attention and no great debates are in progress. People appear to be waiting for the next political and economic shoes to drop. The very rich irony of the national election is that we are now told that, were the Democratic procedures for vote counting honored in Florida, Mr. Bush would have won by a considerable margin, while if Republican proscriptions ruled in the counting houses, Mr. Gore would now be our President. These truths appear to have silenced both political parties and the chattering class of pundits as well. The public's befuddlement is even more pronounced for New York City residents where we feel that an informed person on matters political and economic must read both the New York Times and the Wall Street Journal. Was the return of the US spy plane crew the result of George W's firm leadership or were all the decisions made by others when George was on his treadmill watching Oprah? Is the economy in critical need of the Bush tax cut which, to be effective, should be deeper and frontloaded? Or is his proposal reckless in that it puts prosperity at risk and is in addition most unfair? On so many matters we are left wondering what to think.

In the corner of the world where we operate--the private equity market --this sense of living within an interregnum is palpable. We know we have left the Bubble behind but what is going on now and what lies ahead? As to the first question, the answer is ...very little. The investment pace has slowed markedly and the $70 billion raised last year--more than ever before and more than 14 times the annual norm--is not, for the most part, funding new opportunities.The capital is being used to support ailing portfolios and it remains to be seen if this is smart or foolish follow on money. I believe that when nerves are more settled, some of this capital will be redirected to investing in new opportunities and I think this will occur within the calendar year.

We continue to be the beneficiary of this scarcity of capital which manifests itself in several ways--enhanced deal flow, lower entry level pricing and a more deliberate due diligence process. However one must be very aware of increased financing risk with respect to second and third round financings both as to the availability of capital and the new lower pricing reality.

Achieving a first closing in the current climate was a challenge and we are happy that this process is now being concluded with initial capital commitments circa $10 million. We now intend to move forward gingerly to identify the most attractive young companies within Milestone's strategic ambit.

Thanks again to all of you for your support.

Yours truly,

Edwin A. Goodman
General Partner
Milestone Venture Partners

MVP Welcomes New Advisory Board Member

We are delighted to announce that Mr. Sean Manchanda has joined our Advisory Board. Mr. Manchanda is a Senior Manager, Consulting--Communications and High Technology Global Market Unit at Accenture (formerly Andersen Consulting). Of particular importance to MVP, his responsibilities include evaluating and launching start-ups with new business models. Mr. Manchanda's involvement with Milestone provides a valuable link for our portfolio companies to the worldwide capabilities of Accenture--which is the world's largest management consulting and technology company with 70,000 employees in more than 45 countries.

Milestone Portfolio News

Evaliant Media Resources LLC www.web-advertisers.com
Formerly Leading Web Advertisers, adopted its new name in April 2001. The decision to adopt the new name was driven by its plans to extend its advertisement tracking capabilities beyond the Web and into all electronic media advertising, including on-line, wireless and digital. Evaliant also announced in April that it closed a $5 million second round of financing in which Milestone participated. Other investors included Coqui Capital Partners, FdG, and Spinner Global Technology. Management believes this round of financing will take it to profitability. Evaliant is headquartered in New York City with offices in San Francisco, Toronto, London, and Beijing. The Company tracks online advertising of over 85,000 brands on 2,700 U.S. web sites and 2,300 international sites.

OuterForce Systems, Inc. www.outerforce.com
The enterprise software portfolio company that targets media space, announced in March 2001 that Paul Daley joined as its new CEO and board member. Mr. Daly joins OuterForce from Baan Americas, which he ran as President. Prior to Baan, Mr. Daly was Director of Application Sales for the Oracle Corporation, where he was responsible for revenue growth from $1 million to $140 million and presided over the management of a 40-person sales staff. Founder Jonathan Glick will assume the role of President. The OuterForce Platform empowers publishing and advertising businesses to rapidly create new content products or campaigns, plugging into existing content management and ERP solutions. OuterForce's system was favorably profiled in The Seybold Report on Internet Publishing in March 2001. In October 2000, Milestone invested with Flatiron Partners and Pequot Venture Partners, the venture arm of Pequot Capital Management, Inc., which led OuterForce's first institutional equity round of financing.

I-Works, Inc. i-works.com
A provider of customized Web solutions for small businesses, recently announced several executive management hires, including the appointment of Stephen C. Bryan as President and CEO. Bryan was most recently President of the Midwestern Division of AT&T Broadband, where he was responsible for consolidating the operations of seven acquired companies serving more than 3 million customers. In addition, I-Works appointed Russell Zitny as Chief Sales and Marketing Officer. Zitny comes to I-Works from Sprint PCS, where he ended his tenure as vice president of the north central region. Zitny successfully led the commercial launch of the Sprint PCS service. The new executives are working to build and support a national distribution network to achieve I-Works' ultimate goal of becoming the leader in providing affordable, customized Internet solutions to small businesses. I-Works' current distribution partners include Cardservice International, which has over 185,000 merchant credit card processing customers. Milestone's co-investors in I-Works include Apex Venture Partners and Keystone Venture Capital.

PlusFunds Ltd. plusfunds.com
Plusfunds announced an agreement in April 2001 with Consulting Services Group (CSG) to provide services relating to its hedge fund activities. CSG provides investment advice to over 80 clients with more than $26 billion in total assets. As a result of the agreement, CSG will seek to utilize the PlusFunds platform to meet the needs of its sophisticated clients that demand better performance and risk reporting. Created in early 1998, PlusFunds is the world's leading independent hedge fund service platform with offices in New York and London. The firm designed its service platform in cooperation with Standard & Poor's, Ernst & Young, Advent Software, Inc. (Nasdaq:ADVS), RiskMetrics Group, and the Bermuda Stock Exchange (BSX). More than 18 hedge funds are currently participating on the platform, with combined assets of approximately $500 million. 

Seed Funds Still Outperform

(Numbers are based upon more than 1,200 venture capital and buyout funds formed since 1969 and more than 425 European private equity funds formed since 1980. Returns are net to investors after fees and carried interest).

About | Approach | Management Team | Advisory Board | Portfolio | Firm News | Contact

551 Madison Avenue, 7th Floor, New York, NY 10022 V: [212] 223 7400 F: [212] 223 0315