BUSINESSWEEK ONLINE : NOVEMBER 1, 1999 ISSUE
BUSINESS WEEK E.BIZ -- PERSONALITIES

Internet Capital's Young Turks
Fox and Buckley bet solely on e-commerce startups

Walter W. Buckley III and Kenneth A. Fox aren't Tinseltown material. While working for a Philadelphia investment firm, the pair traveled to Los Angeles in early 1995 to scout out a multimedia deal. But before a meeting with a music industry attorney, they decided to adopt what they thought was an L.A. look. At Barneys New York in Beverly Hills, Buckley wound up with a neon blue shirt and pants and Fox walked out in a sports jacket with sleeves that were too long. When they finally met the lawyer, he showed up in the sort of casual duds they had just dumped. ''The rest of the day we kept trying to figure out how we could change back into our other clothes,'' Buckley laughs.

These days, Buckley, 39, and Fox, 29, are still shopping together--but in less glitzy markets and with considerably better results. They're the founders and top executives of Internet Capital Group Inc. (ICGE), a publicly traded company that invests exclusively in startups that help companies buy and sell products to one another via the Web. They launched ICG in 1996, and were among the first to spy this so-called business-to-business market, which Forrester Research Inc. estimates will balloon from $131 billion now to $1.5 trillion by 2003. ''They went where other people weren't looking and shined the light,'' says Net guru Esther Dyson, chairman of EDventure Holdings Inc. and an ICG adviser.

The two are money magnets. Before going public they gathered more than $200 million from big investors such as cable giant Comcast Corp. (CMCSK) to place bets on e-commerce players in gritty industries like chemicals and wastewater treatment. Already, their foresight is being rewarded. ICG went public in August and now boasts a market cap of $11.7 billion, giving Fox and Buckley each more than $500 million in ICG stock.

B-TO-B WINNERS. What makes them a standout is not just that they have invested nearly $300 million for stakes in 39 promising upstarts--it's how they've managed those investments. They have hired a staff of 29 dealmakers and managers to advise the companies on everything from recruiting to finance. And, like famed investor Paul Allen, the co-founder of Microsoft Corp. (MSFST), the ICG duo knit the upstarts together in keiretsu-like alliances. The theory: The sum of the partnerships will be greater than the individual companies. ''They've assembled a great set of assets,'' says David G. Sanderson, vice-president in charge of Bain & Co.'s e-commerce practice. ''They should be one of the winners in the B-to-B space.''

For the companies that ICG invests in, those collaborations can create new business opportunities. For instance, PaperExchange.com, an online marketplace for buying and selling pulp and paper, is now creating a Web store for selling equipment along with ICG-backed VerticalNet Inc., a company that operates online communities for 52 industries.

The ICG vision grew out of the close partnership forged by Buckley and Fox. On the surface, they are a study in contrasts. Fox, a young-looking 29-year-old who is managing director of the company's West Coast operations, is all adrenaline and chutzpah. Within minutes of meeting CBS Corp. CEO Mel Karmazin at a conference in January, Fox lined up a meeting. The 39-year-old Buckley, ICG's CEO, is best known for his coach-like style, fostering teamwork and camaraderie. He recently persuaded ICG Managing Director Todd G. Hewlin to stop by the company's Wayne (Pa.) headquarters on his way from Baltimore to Boston just to join in a six-mile run.

While Fox and Buckley may differ in style, their fundamental makeup is strikingly similar. They share a knack for building business relationships, whether it is landing partners such as IBM (IBM) or recruiting executives from Microsoft Corp. They troll for deals on both ends of the country--Buckley is based outside Philadelphia while Fox works in San Francisco. ''They're like a virtual team but in two locations,'' says Sam Jadallah, an ICG managing director, whom Fox recruited from Microsoft.

''HUNTING PARTIES.'' That virtual team still has plenty of work to do. They just hired three executives to establish an operation in Europe. And at a September meeting of senior management in Boston they set up teams--dubbed ''hunting parties''--to spearhead moves into the next 10 markets they want to enter. They're racing to grab the best real estate on the Web before somebody else can claim it. Says Fox: ''This is the biggest wealth-creation opportunity the world has ever seen.''

For all of ICG's potential, Fox and Buckley face complex challenges. With many venture capitalists now hunting for business-to-business investments, ICG faces more competition. And there's a good chance that some ICG companies may begin to encroach on each other's markets. VerticalNet's Chemical Online community, for instance, could eventually compete with another ICG company, e-Chemicals Inc. Also, a stock market dive could undercut ICG's ability to raise money and make investments.

The company's stratospheric stock valuation, though, is clear evidence that Buckley and Fox hatched the right plan at the right time. It was no accident. They had learned how to spot rich markets and to cut deals at Safeguard Scientifics (SFE), the Wayne (Pa.)-based technology-investment firm. In 1994, they hunted together for deals in the computer graphics market--and later started targeting the Internet realm. In 1996, the two decided to strike out on their own and invest solely in business-to-business startups. Rather than selling out quickly after an initial public offering, like most venture capitalists, they planned on holding onto their stakes as long-term investments.

But the strategy wouldn't work without their drive and tireless networking. Fox won't take no for an answer when he recruits managers. And Buckley is just as driven. His biggest passion: building long-term alliances and loyalty. When VerticalNet was having cash flow problems in 1996 and 1997, Buckley repeatedly wired cash infusions--as much as $40,000 at a pop. ''He was the big believer back then, and there weren't many,'' says VerticalNet founder Michael Hagan.

As ICG grows, Buckley and Fox need more bench strength. The company now boasts a management roster of such executives as Jadallah, who will closely advise a handful of ICG companies, and former Heidrick & Struggles Inc. search firm partner Richard S. Devine, who is creating a recruiting operation to fill key jobs at the partner companies. McKinsey & Co. veteran Hewlin heads a strategy group that advises the startups on strategic decisions.

Much brainstorming goes on at the annual ICG conference. There, Buckley and Fox bring together executives from all their partner companies. Before the meeting, they play matchmaker, talking about what sort of deals the CEOs are looking for and who they should golf with. And Buckley and Fox, big believers in getting everyone to loosen up, got up at this year's conference in Colorado and sang the Rolling Stones song Honky Tonk Women. ''It feels almost like a fraternity,'' says Michael Gilfillan, CEO of the job recruiting Web site Computerjobs.com.

If Buckley and Fox know how to party and work together, it may be because they come from similar backgrounds. Both were raised in the suburbs of Philadelphia. Buckley's father runs his own investment management firm, while Fox's father heads a diversified manufacturing company. Fox says he was fascinated with business at an early age, frequently trailing his father to work and even sitting in on meetings. Buckley's drive, on the other hand, was centered on sports. He was a star soccer player for the University of North Carolina at Chapel Hill. His coach, Anson Dorrance, who now coaches women's soccer, recalls that Buckley was the kind of player who by the end of a game ''was bleeding from every pore.'' Says Dorrance: ''He played with wonderful, physical, reckless abandon.''

UPS AND DOWNS. Their raw intensity made both Buckley and Fox impatient with the routine of life in big corporations. But the two found an environment in which they could thrive at Safeguard. ''Ken is more outwardly aggressive,'' says Safeguard CEO Warren V. ''Pete'' Musser with a laugh. ''But inwardly, Walter is just as bad.''

That helps explain a favorite activity for the pair. When Fox is back East they often run up a punishingly long, rocky hill a few minutes from ICG's offices. ''It's a bit like the Internet world,'' Buckley says. ''Lots of ups and downs.'' Their stamina could prove critical as this dynamic duo drives for the finish line.

By AMY BARRETT

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Internet Capital's Young Turks

GRAPHIC: How the Chemistry Works at the Internet Capital Group

RESUME: Walter W. Buckley III

RESUME: Kenneth A. Fox



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