Venture capital?s new-MVP?


Cassandra, HomerÌs prophetess of doom, has apparently decided not to knock on the doors of Stephen Socolof, the managing partner at Murray Hill, New Jersey-based New Venture Partners. Unlike many of his better-known venture capital peers, Scholof and his partners Andrew Garman and Thomas Uhlman have been having a stellar time of late.

Since inception, NVP has sold five companies for $423 million. In 2002, Celiant, a wireless equipment provider, was bought by Andrew Corp. Others that were sold include elemedia, Lucent Digital Video, Notable, and Maps On Us. NVPÌs total investment in the five companies that were sold: $40 million.

New Venture Partners is the new moniker for LucentÌs New Ventures Group, an incubator started by the beleaguered equipment maker in 1997. Mr. Socolof and his partners were given the task of trying to turn technologies developed by LucentÌs Bell Labs into commercial enterprises. Focused on wireless, optical, security, storage and semiconductor technologies, NVG was turning into a nice little side project for Lucent until the telecom meltdown forced the company to retrench.

In July 2001, Lucent decided to circle the wagons and spin-off the New Ventures Group. Mr. Socolof and his partners raised $167 million, mostly from the UK-based fund-of-funds Coller Capital, and bought an 80 percent stake in the NVG portfolio from Lucent for $112 million while rest is being used for Lucent remains a limited partner with its 20 percent stake.

So far, the record ainÌt too shabby. Of the 27 companies they inherited, the NVP crew has only had to shut down three, or one out of every nine portfolio holdings. Compare this with the industry at large. According to Thomson Venture Economics, four out of ten companies were folded in 2002. In 2002, the total value of exits by venture funds was around $9 billion, meaning NPV accounted for 4.7 percent of all exit value.

The one-year return of early and seed stage venture capital funds was a negative 35.3 percent in 2002; NVP returned 150 percent. (NVPÌs returns since inception are about 55 percent.)

NVPÌs portfolio still includes red-hot wireless start-up Flarion and digital-radio equipment maker Ibiquity, both of which have been actively raising capital. Flarion, which had raised about $45 million in a series B funding from Cisco Systems, Nassau Capital, Pequot Capital and NVP, got a boost when the South Korean wireless giant SK Telecom invested an undisclosed amount in November 2002. Ibiquity snagged $45 million in a third round from the likes of JP Morgan Partners, NPV, and Susquehanna Radio, the countryÌs eleventh largest broadcaster.

Other holdings in the fund, like communications equipment makers Internet Photonics and Sychip, have seen their valuations go up, claims Mr. Socolof. He pegs the aggregate value of the portfolio around $250 million.

NVP has clearly capitalized on its early connections with Bell Labs. The plan in 2003 and beyond is to convince other corporations to let NPV help turn their R&D breakthroughs into start-ups. TheyÌre currently finalizing deals to commercialize the R&D breakthroughs of two East Coast corporations with research and development budgets in the billions.

In the meantime, NPV is also going to try and close another next fund, ideally about $200 million in size. Given that only 33 funds were able to raise $1.7 billion in the third quarter of 2003, Mr. Socolof and his partners have their task cut out for them. But if their performance in 2002 is any indication, it looks like theyÌll find some eager investors.

ÛOm Malik

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