Milestone Matters - Fall 2000 Newsletter
"...In the new economy, bandwidth replaces computer power as
the driving force of technological advance. The telecosmic vision of nearly
infinite wave-borne bandwidth does for communications what Moore's law
did for computing: defines the direction of technological advance, the
vectors of growth, the sweet spots for finance..."
--George Gilder, "Telecosm"
Editor's Corner
Dear Friends, Investors and Associates,
I am happy to report to you that I'm writing this letter
from Milestone's new home at 551 Madison Avenue and that we are working
our way patiently through the inevitable "punch list" and all
should be functioning smoothly in short order.
Todd and I remain enthusiastic about the myriad opportunities
that we continue to encounter which fall within our investment ambit.
We now have 13 investments in the MVP I portfolio. These include three
recent transactions; Leading Web Advertisers, OuterForce.com and DesignArchitecture.com.
You'll find more information about them in the "Recent Investments"
section of this newsletter.
The venture marketplace has returned to a state closer to
the historical norm which is to say that investors now have more leverage
than entrepreneurs and financiers are skittish about backing companies
which cannot point to some or all of the following; products, customers,
strategic alliances, revenues and profits. It is no longer possible for
entrepreneurs to easily raise capital for a new idea and for investors
to take comfort from the prospect that they will be inevitably rewarded
with significant mark-ups in subsequent financing rounds and ultimately
embraced by a welcoming and price-insensitive public market.
At Milestone, we are very much looking forward to participating
more extensively in these markets at the less competitive, early stage,
low end of the capital food chain. This will be possible when MVP II has
its initial closing which we anticipate no later than the first calendar
quarter of 2001.
We will keep you apprised of our activities via this letter
and other complementary channels. Thank you all for your support and continuing
interest.
Kindest personal regards,
Yours truly,
Edwin A. Goodman
Principal
Milestone Venture Partners
Milestone Recent Investments
We are pleased to note that $128 million in private capital has been
raised by our portfolio companies subsequent to Milestone's initial investment.
In seven of the portfolio companies, we are joined by prominent institutional
co-investors.
OuterForce.com is an enterprise ASP that enables publishers, web sites
and content syndicators to recruit, manage, and compensate very large
external teams of freelance content contributors and editors. As a total
workflow and workforce management solution, the OuterForce Platform provides
substantial efficiencies in the process of creating original content.
It will be licensed on a monthly basis and served over the Web. Milestone
invested with Flatiron Partners and Pequot Venture Partners.
www.OuterForce.com
DesignArchitecture.com is an Application Service Provider for the worldwide
$3.2 trillion per year architectural, engineering and construction (AEC)
industry. The Company offers an integrated suite of products for Architects,
Interior Designers and Owner's Reps for the marketing and procurement
of professional services and the collaboration, management and delivery
of design and construction projects. Milestone invested with institutional
co-investors including Silicon Alley Venture Partners and VentureQuest.
The Company has entered into a co-branding agreement with two major trade
organizations: The American Society of Interior Designers (ASID) and The
Society for Marketing Professional Services (SMPS).
www.designarchitecture.com
Leading Web Advertisers' mission is to be the dominant international
provider of single source media and marketing research about the Web and
its competing media. LWA's system tracks advertising on the Web to provide
critical competitive intelligence for companies whose success depends
on buying and selling Web advertising. LWA helps marketers (agencies and
advertisers) build more effective online and multi-media advertising campaigns.
LWA helps sellers (web sites and reps) manage their sales and marketing
efforts more effectively. LWA sells its current service through a base
annual license fee, which allows access by two simultaneous users. LWA
has 50 clients including market leaders such as America Online, Microsoft,
24/7, CNN, DDB Interactive and BBDO (@tmosphere).
www.web-advertisers.com
Milestone Portfolio Financings
Plusfunds.com, an electronic marketplace serving the hedge fund industry,
raised a $42 million round in July, 2000 from prominent institutional
investors including LabMorgan (JP Morgan's e-finance unit), Merrill Lynch,
CS First Boston and Wachovia Capital Associates.
CarParts.com is a B2B and B2C e-commerce site specializing in aftermarket
automobile parts and accessories. Milestone purchased 1% of the company
at the founder's valuation. The company raised $42 million in December
of 1999. Institutional co-investors include CMGI, Brand Equity Investors,
RHO Management, St. Paul Venture Capital, Investor AB, Barnard, and Ravenswood.
I-Works, Inc. hosts and develops web sites for small businesses. In addition
to winning a contract recently from Global Crossing (Nasdaq: GLBX) to
serve Global Crossing’s middle market customers, the company secured
$8 million from Apex Investment Partners and Keystone Venture Capital.
Sector Developments
Communications: There is a discernible and accelerating shift
in focus to investments in companies that are contributing to the construction
of the global communications infrastructure which, utilizing optical transport
innovations (for example: dense wavelength-division multiplexing, 10-plus
gigabyte optical switches and routers and network processors) will greatly
accelerate the speed and volume of data transfer.
Available Capital: The unprecedented growth of the venture business
continues. Venture capitalists invested more than $50 billion in promising
companies during the first half of calendar 2000 and venture funds raised,
primarily from institutional investors, over $30 billion to replenish
their coffers during this same six month period. These figures exceed
the record pace set in the course of 1999.
High Returns: The venture industry is achieving stunning (and
most probably unsustainable) returns. Among its high-quality portfolio,
The Common Fund reports annualized returns of 100% over the last year,
50% over the last five years and 27% over the last decade.
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