BUSINESSWEEK ONLINE : OCTOBER 23, 2000 ISSUE
BUSINESS WEEK E.BIZ -- NET WORTH ONLINE EXTRA: Q&A with Divine InterVentures' Andrew "Flip" Filipowski "When you're the target, it doesn't always feel good" When Flip Filipowski started Internet incubator Divine InterVentures in May of 1999, B2B dot-coms were red-hot. And so was Filipowski, who had just sold his software company, Platinum Technology International Inc., to rival Computer Associates for $3.6 billion. But instead of taking his riches and heading for a West Coast beach, Filipowski stayed in his native Chicago and tried to rally the local politicos and business leaders to get with the New Economy. His rhetoric attracted a lot of attention, both to himself and his young B2B incubator. But when the market turned on dot-coms in the spring, Divine found itself struggling to get its IPO done -- and Filipowski was taking shots from all sides. After a less-than-spectacular public offering in July, Divine has seen its shares drop to below $3, far less than the offering price of $9. Can Filipowski navigate his company to success in the choppy waters that dot-coms are facing now? Chicago correspondent Darnell Little talked with Filipowski about this and other matters. What follows are edited excerpts of their conversation. Q: You've said you believe the current market conditions for dot-coms won't last. How far to the other end do you think the market will swing back? A: That's the hardest thing in the world to predict. The chance of the pendulum swinging along the exact same path is slim to none. There's usually some variety on it. There's perhaps some new perspective or new perception that can be applied to what had been attempted once before. The companies that develop, in my opinion, don't develop any differently under either scenario. They start up, they spend capital, they develop their business, they lose money, sometimes for a brief period, sometimes for an elongated period like Amazon. What changes is the line at which certain kinds of investors are willing to invest. Q: Do you still think that Chicago and the Midwest hold an advantage for creating B2B companies because of the traditional industrial base? A: I think it's pretty strong. There's always the risk that the existing businesses, brick and mortar, get complacent to that effort and don't pursue deploying the technology advantages that will serve them well in the next business cycles. By virtue of the population of the industrial base in the Midwest it is certainly in a great position to get that job done. I think the development of a new segment of the economy is the same regardless of market conditions. You have to foster an environment conducive to attracting high-tech companies and employees. You have to provide the kind of educational environment, the kind of real estate environment, the kind of infrastructure drawn to the area in, over, and under exuberant periods of time. Q: Where do you think Chicago stands now in terms of creating that environment? A: My personal opinion is that it is in much better shape than several years ago. And that's because various segments of the economy have marshaled their resources and have focused on developing that -- whether that be the academic community, and certainly the political community. Mayor [Richard M.] Daley continues to play a major role in shaping that. I think Governor [George] Ryan has been a leader in the state of Illinois for that. Q: The impression that Chicago's dot-com future was dependent on Divine's success, how did that come about? A: I think Divine did achieve a certain level of visibility because we were birthing ourselves during that exuberant time. I think we presented ourselves as focusing in on the area. I think for Chicago and the Midwest to succeed, it takes a thousand different efforts. We did achieve a target status, and we're perhaps easier to point out than some other efforts. But that may have been by being more vocal and more visible during that period of time as we were forming what Divine does. We did take on maybe a slightly larger role in investing more in the area, more than almost anyone else did. And to some degree that turned out to make us more visible. Q: You felt some of the press coverage was highly personal? A: I think I had been very aggressive in promoting the New Economy. I think I created a target that was a juicy one, and the resulting consequences were that when the economy and marketplace perceptions swung the other way, it was convenient to do that. I certainly don't want to whine about it. There were certainly many fair things that were done by the press. I think some folks were trying to be entertaining and funny -- and maybe not factual. But when you're the target, it doesn't always feel good. It feels good when it's positive, believe me. I think there were some fair things to point out: that Divine was a very young company, it had been in existence for only a year as it was attempting to go public. It had an unproven track record as a result -- not many of our companies had gone public. All those were absolute truths and could have been highlighted perhaps even more than they were. Q: The statements that appeared in the media from you regarding Divine's financial condition caused another delay in the IPO. You say those comments were taken out of context? A: There was a long period of time where Divine was in a quiet period. Much of the material since we were a hot topic was being reused from prior periods of time. Much of the material was old information presented out of context. For example, in [Chicago Sun-Times reporter Howard Wolinsky's] discussions with me, his questions were, "What would you do if you found the public markets inaccessible?" And my answer was that we would have to severely cut back our operations, that we would probably have to let go of an enormous number of the individuals involved. We would have to get to break-even to survive. And we would do that over a three- or four-month period. Now, out of context, you take any one of those statements, and it's, "Flip says you're going to break even in four months." And you're a company going public, and you can't respond to that kind of stuff being printed. You find yourself in an unenviable situation. The reason we had our last three-day delay was because that message had to get out: Don't make your investment decision based on anything in the press, make it based on the S-1. I don't think the SEC was saying, "Don't believe Flip!" Q: You believe that negative publicity soured some investors on Divine before your IPO? A: The perceptions that are reported by the press become the perceptions of reality. And although on the day we were finishing up our road show we had a tremendously oversold situation, the stories that came out, that the orders for the company were the reason for us not pricing that day -- nothing could have been more inaccurate. It was only after the articles that many of the orders were retracted as a result of the articles, and we had to scramble a little harder to get the deal done. And we got it done. Q: The Divine portfolio, three months from now, how different will it look? A: We will be emphasizing the best and brightest stars of our group. We will be trying very hard to make sure they reach the kind of state that will allow them to reach certain liquidity events. That will continue to be the focus of our short-term attention... I think that if you go out to the first or second quarter of next year, that's when we probably have a little bit more activity in the selection of new investments. I'm not saying we're not going to do any now -- it's an issue of the number and quantity. Q: And some of the companies will have to be let go? A: Yes. But what does that mean? Any one of them, as they execute their plan, may come to the point where they are raising money again. And in that context we may choose to participate in only a pro rata basis, or a less-than-pro-rata basis, or we may choose in some cases not to participate in any future rounds of financing at all. Would we participate in all of our organizations' next round of financing?... The answer would clearly and honestly be no, we probably would not. Q: Some analysts ask why a company would choose an incubator if they have a good business model. Companies with good models can find venture-capital money. What's your response? A: Most of the statements you made I would absolutely agree with if the topic of the geography was Silicon Valley. Frankly, the distinction of what a VC does and what Divine does is subtle. VCs typically end up investing in companies that are already in geographies that have access to the rest of the infrastructure, whether that be sympathetic banks, sympathetic real estate landlords, sympathetic marketing companies, and PR companies that understand the New Economy. All of that is part of the reason that VC gravitates to geographies that have that. What we try to do is bring the ecosystem to areas that have other assets, like the Midwest having certain enabling technology strengths, and perhaps even marketplace strengths. I think it's different throughout the Midwest...If they want to stay here, they have to get money from people who are willing to invest in this area, and we are certainly one of those. I don't think they really look at us and say, "Gee, that's an incubator or that's a VC, their money is different." There's very little difference to the recipient. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS EBIZ Contents for issue dated Oct. 23, 2000 Incubator--or Incinerator? TABLE: Divine's Dashed Dreams TABLE: How Divine Measures Up ONLINE EXTRA: Q&A with Divine InterVentures' Andrew "Flip" Filipowski INTERACT E-Mail to Business Week Online

Copyright 2000-2009, by The McGraw-Hill Companies Inc. All rights reserved. Terms of Use   Privacy Notice