Some people become victimized when businesses turn sour, while others capitalize on those very same scenarios. The following 20 “Roadkill Warriors” are among those resourceful Angelenos who are either already capitalizing or poised to capitalize on the dot-com meltdown. They are bankers, lawyers and venture capitalists who are restructuring, merging, acquiring, liquidating or otherwise cutting deals involving the new-media roadkill that couldn’t quite cut it on the digital superhighway.
Ravin Agrawal
Partner
EastWest VentureGroup
Sourcing, managing and harvesting investments is what Ravin Agrawal specializes in as a general partner at EastWest VentureGroup. Current investments include Zone Labs, eAppliance, Broadstream and Radical Communications.
“Our hope is for them to become substantial, large, sustainable businesses and for us to achieve a significant return on our risk and investment,” Agrawal said.
Prior to joining EastWest VentureGroup, Agrawal was a New York-based business consultant for McKinsey & Co., the global management consulting firm. At McKinsey, Agrawal was involved in the evolution of Internet commerce by helping major global banks respond to the opportunities presented by startups with new business models and technologies.
Agrawal also managed several programs to improve the operations of media and entertainment companies, and international business development efforts for technology clients.
Previously, Agrawal had founded and served as chief executive of SouthAsia.com, a pioneering Web design firm in Bangalore, India, and had been a noted nationwide speaker on the commercial possibilities of the Internet for South Asian companies.
Agrawal received a B.A. in economics from Harvard College and an MBA from Harvard Business School. Having served as producer of the “Hasty Pudding” show and as editor of the Harvard Lampoon during his college days, Agrawal apparently has a sense of humor, which can be an invaluable asset for those in the dot-com realm these days.
Alicia Doyle
Naj Allana
Senior Manager
Deloitte & Touche
Naj Allana is clearly among those caught up in the dot-com storm. He has recently developed an Internet strategy for one company, worked up a business blueprint for a consumer product company’s business-to-business exchange, and produced a business strategy, business model and value proposition for an importer of simple durable goods using the Internet as a primary means of sourcing. (He declined to specify company names, citing client confidentiality reasons.)
With 15 years of consulting experience, Allana now assists firms in the e-marketplace and e-business arena. He specializes in the high-tech, entertainment and consumer products industries, for both dot-com and traditional brick-and-mortar companies.
Allana holds an MBA from UCLA Anderson Graduate School of Management. In addition, he received a master’s degree in advanced accounting and advanced cost accounting, as well as a bachelor’s degree in accounting and auditing from the University of Poona, India.
Paul Aronzon
Partner
Milbank Tweed Hadley & McCloy
A bankruptcy lawyer for the last 20 years, Paul Aronzon is co-chair of Milbank Tweed Hadley & McCloy’s financial restructuring group, where he has been busy bailing out telecom and dot-com companies that saw their fortunes drop with the stock market earlier this year.
While most dot-coms are merging or being acquired rather than filing for bankruptcy, Aronzon has helped with the restructuring of dozens of e-commerce and technology firms.
“March 10 (when the tech-laden Nasdaq plummeted) is a day I’ll never forget,” said Aronzon, who predicted the dot-com fallout a couple years ago. “I started laughing and I called Ken (Baronsky, another partner) and said, ‘We’re going to get busy now.'”
And indeed he has been.
In August, he helped broker the sale of GST Telecom, an East Coast Internet infrastructure company, to Time Warner Communications for nearly $700 million. Prior to that, he worked on the restructuring of San Diego-based Space Metrics and the $100-million sellout of Santa Barbara-based Atlas Communications.
Jennifer Netherby
Ken Baronsky
Partner
Milbank Tweed Hadley & McCloy
Ken Baronsky heads the corporate practice at Milbank Tweed Hadley & McCloy, where he has helped his corporate clients buy smaller Internet companies.
He worked with Westlake Village-based Right Start on its failed strategy to file an IPO for its online subsidiary, Rightstart.com. Now he says he’s learning to help companies raise venture capital in the post-frenzy e-commerce world.
Baronsky has also represented venture capitalists themselves, including SunAmerica Ventures and Digital Coast Partners. Much of his work now is focused on merger and acquisition activity.
Baronsky started at Milbank after receiving his law degree from the University of Washington in 1988. He has been in the firm’s corporate unit ever since.
He worked on the $700 million sale of GST Telecom to Time Warner Communications in August and also represented Primary Networks, which was sold to Empower Communications earlier this year.
Riggs Eckelberry
Managing Director
NetCatalyst
Riggs Eckelberry arrived at NetCatalyst in Santa Monica fresh from the sale of Internet technology startup TriVida to public Internet company Be Free.
At NetCatalyst, Eckelberry has helped develop “liquidity engineering,” a set of processes by which “we remedy issues affecting liquidity issues in a basically healthy company,” he said. “We take companies that still have cash, but for some reason are stuck. Their business model needs refocusing, they lack partnerships, need revenues, or they’re not getting funded. We remedy that.”
Previously, as chief operating officer of technical support content vendor Micro House International, Eckelberry helped sell that company to EarthWeb Inc. in under five months. He first used the Internet in 1995 to launch Quarterdeck’s CleanSweep software program and went on to found L.A.-based online marketing agency Lassoo Interactive.
As for his roots, Eckelberry launched a marketing services practice in the late 1970s. In the 1980s, he founded a UNIX microsystems house in New York that flourishes to this day.
Alicia Doyle
James Freedman
Managing Director
Barrington Associates
James Freedman is busy these days. The managing director of Barrington Associates says he is currently involved in efforts to sell six Internet operations to either Old Economy companies or to other Internet outfits. (Freedman declined to name the companies until after the deals have closed).
Since founding Barrington Associates in 1982, Freedman has advised more than 150 middle-market companies in the areas of corporate finance, mergers and acquisitions, corporate valuation and strategic business decisions.
He has been the principal financial advisor on numerous merger and acquisition transactions with values as high as $400 million, including deals for the Los Angeles Kings, Applause Inc. and Nordskog Industries. Freedman was involved in the recapitalization of RSI Home Products Inc. and the sale of Encore Video to the Four Media Corp.
Marc Gamsin
President
SunAmerica Ventures
SunAmerica Alternative Investments
Marc Gamsin’s most recent deals involve Integrated Micromachines, a company that manufactures switches to speed up transmissions over the Internet, and Talk 2 Technology, a company that provides voice access to computer information.
As president of SunAmerica Alternative Investments and SunAmerica Ventures, Gamsin focuses on investing in high-tech infrastructure companies that specialize in communications infrastructure and Internet software and services.
Gamsin has been responsible for SunAmerica’s $3 billion alternative investment portfolio since 1996. The portfolio includes investments in leveraged buyouts, distressed debt, real estate and emerging market funds, as well as hedge funds and direct private equity investments. Gamsin is also responsible for the activities of SunAmerica Ventures, which he founded in 1997.
Before joining SunAmerica in 1996, Gamsin was a partner for 10 years at the Los Angeles law firm of O’Melveny & Myers, where he represented investment fund sponsors and other financial services companies, and handled merger and acquisition transactions.
Alicia Doyle
Jim Gauer
General Partner
Palomar Ventures
Jim Gauer says now is the time to invest in startups engaged in solving key networking and Internet infrastructure problems. Since launching Palomar Ventures in April 1999 with Randy Lunn, Gauer has overseen the fund’s investment in a slew of early-stage companies.
The fund has taken both Efficient Networks Inc., a supplier of DSL equipment, and Viosource public in their first year. But most of the companies they are invested in are “future stars,” three to five years away from becoming known entities, Gauer says. Palomar is focused on Internet infrastructure companies, which are less affected by swings in the market, according to Gauer. Gauer has been an equity fund manager for the last 13 years, after working as both a software engineer and company CEO. He joined a Belgian investment fund in the late 1980s and, in 1993, relocated to Los Angeles to work at Enterprise Partners Venture Capital and has focused on the technology sector since then. At Enterprise, Gauer launched the firm’s information technology branch, leading it to invest in Active Software, which was recently acquired by webMethods, and XLNT Systems, which was bought by Intel.
Jennifer Netherby
Marshall Geller
Chairman and Chief Executive
Geller and Friend
Capital Partners Inc.
Brighton Venture Partners
Arguably the highest-profile dot-com restructuring to date, that of Drkoop.com Inc., was largely orchestrated by Marshall Geller.
Acting as a catalyst for the deal, Geller chairman, CEO and founding partner of both Geller & Friend Capital Partners Inc. and Brighton Venture Partners found the financial resources, formed the management team and took an active role in putting the deal together. He now is an outside director on the board.
“In my mind, that was one of the first visible restructuring deals out there,” Geller said. “It was the first real major well-known company that has been restructured in that way.”
Until 1995, Geller was the senior managing partner and founder of Golenberg & Geller Inc., a merchant banking investment company. From 1988 to 1990, he was the vice chairman of the investment banking firm Gruntal & Co.
Geller has served on boards of several publicly and privately held corporations. He serves on the Dean’s Advisory Council for the California State University system and most recently was presented the Universities Distinguished Alumnus Award for the School of Business & Economics.
John Laco
Vice Chair, Entertainment
Venture and Technology Group
O’Melveny & Myers LLP
John Laco founded O’Melveny & Myers’ emerging companies practice three years ago, when the future looked extremely bright for many Internet startups. That was when Laco’s clients needed legal advice in negotiating their generous venture capital offerings or preparing for their IPOs.
These days, many of the former high flyers are seeking Laco’s assistance in trying to stave off bankruptcy by securing another round of financing or to negotiate their acquisition by another company.
For dozens of local start-up companies hunting around for the elusive second or third round of financing, Laco represents the last hope. “Through our networks, we can at the very least offer them a crack through the door to the money guys,” said Laco, who declined to name any of the troubled firms he works with. “We can say to VC firms, ‘These are our clients; we believe in what they’re doing,’ and we have the guarantee that they’ll take a look at them.” However, with most VC firms focusing on their pre-existing portfolios and reluctant to take on any new risks, it’s pretty rare for one of Laco’s clients to be thrown a lifeline in the form of another round of financing.
That often leaves them with just three options: filing for bankruptcy, folding their venture into existing operations, or selling the company. And with companies running out of money, their negotiating position can be weak.
“Many acquirers will be very patient and even willing to wait until the company goes bankrupt,” said Laco. “At the same time, if a company is having cash problems, they need to sell as quickly as possible. Sometimes you have to convince the existing investors to pour additional money into a company just to keep it running for 45 more days and to put us in a better position to negotiate a deal.”
Edvard Pettersson
Marc Leh
Partner
Morrison & Foerster LLP
It just takes a head count to see how seriously some major Los Angeles law firms are taking the tech industry shakeout. Morrison & Foerster LLP’s L.A office has 25 corporate finance attorneys, up from 14 less than two years ago, and 20 lawyers in its technology transactions group.
Two years ago the law firm’s L.A. office didn’t even have such a group.
And in this equity market, there is plenty of merger and acquisition activity, said Marc Leh, a partner at the firm.
Leh says he could name six clients off the top of his head who have looked to be acquired by other companies. (He could name them, but he won’t.) Some former Morrison & Foerster clients no longer have that option. Unable to bring in another round of capital or negotiate a successful merger, they have folded, Leh notes.
“If they can’t get additional private equity financing, they’re going to need to look for another strategy,” Leh said. “Since the IPO market isn’t there, it has been (mergers and acquisitions that are being pursued).”
Not surprisingly, much of the merger activity is being driven by venture capitalists looking to take advantage of the hammered-down tech valuations.
“Six, eight months ago, they were looking at IPOs,” Leh said. “Those are not available any more. Now they are looking to the acquisition to liquidate their investment. They want their liquidity event.”
Milo Peinemann
Navid Mahmoodzadegan
Partner
Donaldson, Lufkin & Jenrette
As co-head of the 20-person Technology Group in the Los Angeles office of investment bank Donaldson, Lufkin & Jenrette, Navid Mahmoodzadegan is involved in merger and acquisition talks with a number of dot-coms.
“We get tons of requests,” he said. “We’re inundated by Internet companies that want us to represent them. (But) we’re looking for deals of a certain size. Not all measure up.”
None of those deals has been made public yet.
Mahmoodzadegan has represented a wide range of clients in such industries as technology, telecommunications, media and entertainment in transactions that include equity and debt financing and mergers and acquisitions.
Clients include Homegrocer.com, Xdrive, Univision Communications, US Telepacific, Lantronix, ON Semiconductor, HOB Entertainment, Rotor.net, SmallWorld.com, and Entravision Communications.
Mahmoodzadegan received his law degree from Harvard University. Prior to joining DLJ in 1995, he was an associate in the corporate securities department at the law firm of Irell & Manella.
John Brinsley
Robert M. Mattson
Partner
Morrison & Foerster LLP
The stock of Internet auction company Ubid Inc., a spin-off of a Torrance-based company now known as IdeaMall Inc., had drifted above $180 a share after its 1998 IPO. But it crashed to $12.50 in the weeks before it was acquired last May by CMGI Inc., owner of AltaVista and Engage Inc. And playing a key role in that deal was Robert M. Mattson.
The tightened venture capital market has corporate finance attorney Mattson seeing more of his new-media clients the type that are looking into consolidations, mergers and acquisitions as a way to stay alive. And survival has become the name of the game for many such companies, with Wall Street not so enamored of Internet public offerings and venture capitalists having tightened their spigots.
“There’s a survival issue at stake here for a lot of these companies,” Mattson said. “It’s no secret that a number of Internet companies had to find a buyer, where two and two could make five, where they could combine resources and hopefully be perceived ultimately as a stronger company.” That doesn’t seem to be the perception on Wall Street, since CMGI’s market valuation has dropped since its acquisition of Ubid. After hitting a 52-week high of $15.50 a share in March, the stock sank to a low of $2.50 in August. “Even with the big acquirers, you’ve seen their stock take hits,” Mattson said.
CMGI is projecting profitability by mid-2001.
James Montgomery
Co-CEO
Digital Coast Partners
James Montgomery’s most recent deal involved the merger of Telecore with Viasource. The founder and co-CEO of Digital Coast Partners is currently working with about a dozen other companies involved in e-commerce infrastructure, broadband services and Internet-based marketing services. He said the names of the companies are confidential.
“We want to build healthier companies,” Montgomery said. “We want to build companies that are sustainable and have critical mass and can compete in global markets.
“If you look at most successful companies on the West Coast, they’ve grown largely via acquisitions. This is a great example of how you can use acquisitions to strengthen an already strong company by giving it a broader product reach.”
Montgomery has provided investment banking and strategic advisory services to communications, media and information technology companies since 1986.
Alicia Doyle
Richard Rosenblatt
Chairman and Chief Executive
Prime Ventures
A true pioneer of Internet commerce, Richard Rosenblatt founded the online business service provider iMall in 1994. Today, he leads Prime Ventures’ team of business creators and technology experts as chairman and chief executive.
In August, he guided a team of investors that bailed out the troubled Drkoop.com Inc., a high-profile health information Web site based in Austin, Texas. Prime Ventures and three other investors, including Walnut-based J.F. Shea Co., have pumped $20 million into drkoop.com, which is expected to keep the company afloat until next March.
Rosenblatt will become chief executive of drkoop.com, with the site’s co-founder and former U.S. Surgeon General Dr. Everett Koop staying on as the chairman.
Rosenblatt had built iMall into a powerhouse valued at $565 million by the time of its merger with Excite@Home last year. After serving Excite@Home as senior vice president of e-business services, Rosenblatt began to invest in and provide his expertise to promising Southern California-based Internet ventures and other technology companies.
He founded Prime Ventures in October 1999.
Rick Smith
General Partner
Palomar Ventures
Rick Smith says venture capital firms, scared off by the dot-com fallout, have pulled back too much in their investing, at least when it comes to Internet infrastructure companies.
Smith arrived at Palomar Ventures three months ago from SunAmerica Ventures, which he helped found in 1997 after working on merger and acquisition activity with Eli Broad.
During the three years he was at SunAmerica, Smith saw the fund’s investments grow from $3 million to nearly $750 million. Smith worked on over 20 venture deals while there, funding companies like Micromuse, now valued at $6.2 billion; ConvergeNet Technologies, which was sold to Dell Computer Corp.; and Maverick Networks, bought by Broadcom.
Currently, two of his SunAmerica companies are in the process of being sold because they can’t continue operating on their own, said Smith, who declined to reveal the identity of those companies. (Since he’s no longer at SunAmerica, Smith is not personally involved in those pending sales.)
As for the nature of his deals, Smith has focused on companies that deal with Internet infrastructure and has stayed away from the dot-coms.
Now involved with his first deal at Palomar Ventures, he says he joined the firm because it is focused on early-stage funding, allowing him to help shape the companies’ management teams.
Steven B. Stokdyk
Partner
Sullivan & Cromwell
Steven B. Stokdyk doesn’t think the dot-com shakeout can last too much longer.
“I don’t see this as being a huge trend,” said the advisor to such high-tech companies as eStyle Inc. and Broadband Office. “We had the boom, now I think the bust will be pretty short. A lot of these companies don’t have enough money to draw it out for very long.”
Stokdyk works in the L.A. office of New York blue chip law firm Sullivan & Cromwell LLP. He focuses on venture capital, corporate finance and mergers and acquisitions, and also represents financial advisors, principal investors and the tech companies themselves.
He has worked on the initial public offerings of such companies as Microsoft Corp.’s Internet travel site Expedia, Palm Inc. and Korn/Ferry International. He also worked on the merger of Travelocity.com and Preview Travel and on the formation of Asia Global Crossing.
Daniel Styles
Senior Vice President,
Emerging Growth Division
Imperial Bank
From his perch at Imperial Bank, Daniel Styles oversees a client base of approximately 100 start-up companies.
In the best of times, that means leveraging the startups’ venture capital equity investments to secure debt financing so the fledgling companies don’t have to burn through their cash reserves to stay afloat.
These days, however, it increasingly means finding ways to keep his clients operating until they can secure a new round of financing.
“We’ve started to see more companies where the management team is executing on their business plan, but because of market conditions they still can’t find equity financing,” said Styles. “In those cases, there are a number of things we can do to help our clients.”
The types of help that Styles can provide his cash-strapped clients include access to the numerous VC firms where he has connections.
In addition, he can provide bridge loans, sometimes in conjunction with Imperial Bank’s venture capital division, to hold his clients until they can get a new round of VC funding. Or, on a case-by-case basis, he can allow his clients some temporary relief if they fail to meet the terms of their credit with the bank.
A veteran of the venture capital and investment banking world Styles worked for Sun Valley Ventures and Morgan Stanley & Co. prior to coming to Imperial Bank. As such, he brings more of an investor’s perspective to the commercial banking business.
“I take more of an equity-driven approach,” said Styles. “I’m more inclined to see if there’s value in a company, which is not how traditional bankers typically look at a company.”
Neil Wertlieb
Partner
Milbank Tweed Hadley & McCloy
Neil Wertlieb says there’s no doubt the acquisition market is hot when it comes to tech companies.
While his firm’s venture capital practice is still busy after shifting its focus to business-to-business tech firms and those that don’t do e-commerce, a number of the top companies he represents have gone shopping to buy smaller tech firms as a way to quickly expand their online presence.
Wertlieb helped engineer a joint venture between Toyota Motor Sales USA and I2 Technologies of Texas, which will allow the car giant to sell parts online. He also represented investors in Santa Barbara-based Atlas Communications, a voice-over DSL company that was acquired by Polycom in a $100 million stock deal this summer.
His other clients include VC firms such as Mellon Ventures, as well as the venture capital divisions of such top companies as AT & T; and Tyco International Ltd.
Jennifer Netherby
Derek Wilson
Partner
Morrison & Foerster LLP
Derek Wilson says that while more venture capital in greater amounts may now be flowing, it’s going to fewer, more mature companies.
For example, Morrison & Foerster, where Wilson is a partner, represented Baker Capital, lead investor in a $43 million round of financing for Need2buy.com Inc., an electronics business-to-business site based in Westlake Village. And a few successful mergers are out there too, such as Santa Monica-based STV Communications Inc., a streaming-media company that was acquired this year by Sonic Foundry Inc. Morrison & Foerster represented STV.
“STV is a good example,” Wilson said, “where they sort of leap-frogged what they would have had to do in the private markets because they got publicly traded stock in the merger, and were able to get a good capital base and a larger profile from which to work.” But for many companies, that scenario never materializes. Wilson said tech mergers have been made more difficult because public companies whose stock has been hammered in recent months can’t acquire companies as aggressively as before. “The currency driving mergers and acquisitions to date has been the high stock value of these companies,” Wilson said. “When their stock prices come down, it becomes more expensive to do those acquisitions. It can be difficult to find the right buyer that wants to do it on acceptable terms.” Sometimes merging is a way for companies that have burned through most of their start-up capital to put themselves in a stronger position to pitch themselves for another round of venture capital. “It sort of sets the table to get in front of venture capitalists that they don’t otherwise get to meet with,” Wilson said.
