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PSINet Ventures into Start-Up Funding

PSINet Inc. Wednesday launched PSINet Ventures, a new Internet development branch funded with about $1 billion to invest in Internet start-up firms.

The PSINet (PSIX) investment venture is designed to partner with innovative Internet entrepreneurs through direct minority equity investments during start-up financing.

PSINet's investment arm intends to target application service providers, content service providers, and e-commerce businesses that will enhance the global carrier's portfolio in an international marketplace.

William L. Schrader, PSINet chairman and chief executive officer, said the PSINet has invested in start-up companies for several years. But that this is the first time PSINet has applied a more systematic approach to its funding outreach program.

"We created PSINet Ventures to help bring new ideas and companies to market that support our business strategy and bring to PSINet the best that tomorrow's technology innovators have to offer," Schrader said.

Schrader added that PSINet is uniquely positioned to accelerate the growth of fledgling Internet companies.

"We have a global infrastructure of fiber, data centers, e-commerce capabilities and Internet expertise, all of which are extremely valuable to the next generation of technology companies," Schrader said.

PSINet's existing investment portfolio includes such public companies as Akamai Technologies (AKAM), F5 Networks, Inc. (FFIV), Metrocall, Inc. (MCLL), and other Internet-related companies. PSINet's public and private holdings are currently valued at more than $154 million.

As a part of its funding ventures, PSINet introduced a "Leapfrog Program." The financing plan determines a "dotcom" start-up company's value based on a services-for-equity investment model.

The services-for-equity structure determines a line of credit for the start-up firm, from which the company may purchase PSINet services. Equity, rather than cash, gives a start-up company the means to build its business without a lot of money in the bank.