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It certainly is nice to see a big-time investor belly up for another round at the dot-com bar at a time when most investors have lost all interest in the former Wall Street darlings. Vulcan shows a bargain shopper's savvy in buying shares for 75% off what one could have paid in the past year. Priceline hit a high of $104 in March, and TheStreet.com traded at around $20 a year ago (after briefly hitting $60 following its May, 1999, initial public offering). But before you decide to follow Vulcan's lead, keep in mind that Allen is hardly calling the bottom of the market. After speaking with William Savoy, president of Vulcan Ventures and Allen's chief money manager, it's clear that market conditions are barely relevant to what these guys are up to. COUNTING ON CABLE. First of all, Savoy says it's basically a coincidence that the Priceline and Street.com investments were announced so close together. Negotiations for the two deals started months ago, at different times. Savoy says he, like any other manager, is increasingly cautious in the current market, in which so many dot-coms are desperate for cash. Secondly, these investments are long-term -- with a vengeance. How long? "Long," says Savoy. Vulcan is investing now to profit when every home has a high-speed Internet connection -- which Allen believes will come via cable pipes. He considers today's Internet to be in such a fledgling state that business models that work now hardly matter. Savoy characterizes today's successes as merely "leading indicators." "The Internet as we've come to know it will change dramatically over the next few years," Savoy says. So, Allen has spent billions buying cable assets and assembling the fourth-largest cable company, Charter Communications (CHTR). Now he's investing $5 billion on infrastructure to build out broadband (high-speed delivery). "This is a long, slow process," Savoy says. WHAT'S IN A NAME? Also clear from talking to Savoy: Many, if not most, Vulcan stakes are strategic. "Many of our investments are made in conjunction with at least one other company in our portfolio," he points out. In that sense, TheStreet.com investment may have had less to do with that company's business model and more to do with the benefits Go2Net, another Vulcan holding, could reap from an alliance. Along with getting $7.5 million in cash, the deal calls for TheStreet.com to license Go2Net's message-board technology. Go2Net, which sells content to broadband companies, is being acquired by InfoSpace (INSP) (see BW Online, 8/16/00, "Infospace: A Good Stock That Looks Even Better"), but Vulcan will hold onto its shares, says Savoy. TheStreet.com says the money came from Go2Net and Vulcan, but it's likely that Vulcan got top billing in the headline mainly for marketing reasons. "Vulcan's money means something different than Go2Net's money," Savoy concedes. A third important point: These deals are small potatoes. Vulcan has $8 billion in assets, not counting its cable investments. Dot-com companies, of which there are many, amount to only 15% to 20% of its portfolio. In that context, a 5% stake in TheStreet.com is tiny. Buying less than $100 million of Priceline stock isn't such a big deal either. However, Savoy is well aware that the Vulcan name can have an impact far beyond the size of the investment. "We're very judicious about how and where we invest," says Savoy. "We know people will look to try and read tea leaves." "NOT IMPATIENT." The last thing to keep in mind: Vulcan is no ordinary venture-capital fund. Allen is far more patient than your average limited partner, who will demand to see investments pay off in a timely fashion. "We can be patient because we work for an individual," says Savoy. "As long as we execute against the future promise of technology, then he's not impatient about where the returns are." So, one day we could be pointing to Vulcan's having paid roughly $5.50 a share for a stake in TheStreet.com and $24 for Priceline.com in August, 2000, as a stroke of brilliance. Certainly Priceline and TheStreet.com will benefit from being a part of the Vulcan stable of companies, which are all encouraged to work together, and they may benefit from being part of Allen's grand vision. But investors also have to realize that Paul Allen can afford to be wrong on more than one deal without it hurting his reputation or his bank account. Not everyone believes cable will dominate in the future. But for now, "Paul is my secret weapon," says Savoy. "He has an understanding of technology that far surpasses all the research I could gather if I was at a money-management firm. I take advantage of that every chance I get." Following Allen may not be a dumb move. But don't make the mistake of thinking Allen sees a bottom of the dot-com market here. And, if you follow his lead, here's hoping you're blessed with both the risk tolerance and the time horizon of a billionaire. Stone is an associate editor of Business Week Online |
