While investors were racing to put their money into the latest etail,
auction and e-brokerage stocks last winter, Walter Buckley, chief executive
officer of Internet Capital
Group (ICGE)
was busy executing his company’s business plan.
The plan is to identify and acquire market leaders, integrate them into the network of partner
companies, providing direction, business services, finance and business
development. Operating on a keiretsu model, ICG allows its companies to
share best practices throughout its network. It’s easy to see why the
holding company is often labeled as an incubator. There is a catch
though…and what a catch.
Internet Capital Group invests exclusively in business-to-business (B2B)
e-commerce companies. A “worth”-while approach; Forrester estimates B2B
e-commerce will be worth $1.3 trillion in the U.S. alone by 2003, 10x the
size of the business-to-consumer (B2C) market. Analysts and investors often
overlook the fact that this widely publicized figure only accounts for
domestic B2B e-commerce. Just as in the B2C market, enormous market and
growth opportunities will occur across International borders.
Buckley and Ken Fox founded ICG in early 1996 after leaving Safeguard Scientifics (SFE).
At the time B2B e-commerce was in its infantcy, if not at ground-zero.
Buckley and Fox held two convictions in 1996 that drive ICG’s vision today:
1. There is a demand for convenient and efficient online transactions that
will fundamentally change the way people conduct business.
2. Web-based business-to-business e-commerce presented the greatest
opportunity for market growth and impact.
Well, investors have certainly caught their vision…and a little of the B2B
bug. ICG debuted on Aug. 5, pricing 14.9 million shares at $12 per share,
worth $1.3 billion. Four months and one stock split later, ICG sports a
market cap of $30.1 billion. Reporter@Large had the opportunity to sit down
for an exclusive interview with CEO, Walter Buckley.
Reporter@Large: What is ICG really about?
Buckley: ICG is about building the world’s leading
business-to-business (B2B) e-commerce companies. Our strategy is focused
and simple: We are identifying, acquiring and building the leading B2B
e-commerce companies across the top 50 global markets.
Reporter@Large: What is ICG looking for in its B2B investments?
Buckley: Well, ICG only acquires interests in B2B ecommerce companies
that are capable of obtaining the number one market share in one of the top
50 global markets. When acquiring a stake in a business we take into
account the size of the market opportunity, the quality of the business
model, the capability and track record of the management team and the stage
of deveopment of the company.
Reporter@Large: I know you only invest in exchanges and
infrastructure service providers. Why only these two sub-sectors of B2B?
Buckley: 28 of the companies in our network are market makers that
focus on 24 of the top 50 global e-commerce markets: online marketplaces
aggregate buyer and sellers that conduct transactions and automate the
workflow of their respective industries. The other 19 companies are
infrastructure service providers: companies that provide software or
services to enable e-commerce. These two promising sectors of B2B feed off
each other and really provide a harmonious balance within our network.
Reporter@Large: Can we see some examples?
Buckley: Sure, PaperExchange, an online exchange which helps business
trade pulp and paper, is one example of a market maker within the network.
CommerceQuest, a software developer for e-commerce e
xchanges, is a prime
example of an infrastructure service provider in the network.
Reporter@Large: What are the advantages to a company entering ICG’s
network? (“Buck” gave Reporter@Large a detailed synopsis. We broke it down
for you.)
Buckley: Best Practices: The ICG network provides a forum in which
companies can share best practices in order to succeed. Our 47 partner
companies currently have 42 strategic partnerships among them. Most of the
companies within the network come up against the same types of problems and
opportunities, and the network offers these companies the chance to learn
from one anothers successes and failures.
Professional Services: The ICG has a world-class team of professionals
strictly dedicated to the success of its partner companies. These
professional services include management recruiting, corporate strategy,
finance, information technology and sales and marketing. Our partner
companies can access the best recruiters in the businesses, as well as
strategists, marketers, and financing experts.
Experienced Managing Directors: Each partner company has two ICG MDs assigned
to its Board of Directors. Our management team is comprised of some of
today’s best business minds coming out of Microsoft, McKinsey and GE, among
others.
Advisory Board: Partner Companies can tap into our impressive advisors who
include industry luminaries such as Esther Dyson, Sergio Zyman and Geoffery
Moore.
Reporter@Large: So is it the Keiretsu model that attracts B2B
companies to ICG over VC firms?
Buckley: In the current economy money is everywhere, you have to be a
value-add. The ICG network encourages shared learning and collaboration
which is only truly effective in a highly fragmented market like B2B
ecommerce.
Reporter@Large: What are your thoughts on CMGI’s new $1 billion B2B
fund?
Buckley: The B2B e-commerce opportunity is the richest market
technology has produced to date and therefore there are lots of private
equity firms focused on the space. To date we have only bumped into CMGI
once.
Reporter@Large: ICG takes larger stakes in its B2B companies than
counterpart CMGI. What is the strategy?
Buckley: We look at each opportunity strategically and take stakes
accordingly. Our business model was designed from the ground up to do one
thing, help entrepreneurs attain the leadership position in their respective
market. Our current average ownership across our network is 32%.
Reporter@Large: Right, and ICG seems less focused on IPOing its
properties, more focused on building successful, long-term companies.
Buckley: We are long-term partners and view the B2B e-commerce
opportunity as a 15-year evolution. As a result we view an IPO as an important strategic financing along the course of building a business. We do not sell stakes in companies that participate in the top 50 markets. In fact we are net buyers of VERT stock post ipo. Our only focus is to build
the number one player in each of the top 50 markets.
Reporter@Large: Is management the most important element to a holding
company’s success? After all, we’re talking about the human evaluation of
talent, energy and potentially profitable businesses.
Buckley: Sure. Management is critical. That is why ICG has invested
heavily to create what we believe to be the most powerful management team in
existence today. We have built management team that is truly terrific; hiring the best, brightest and most senior executives. We have assembled a
team with the depth of experience and dedication to help our partner
companies excel.
Reporter@Large: Yeah, the B2B market opportunity dwarfs the B2C
market, but how big of a piece can ICG take?
Buckley: Well, our goal is to hold significant stakes of the No. 1
player in each of the t
op 50 B2B markets. The top 50 B2B markets make up
75-80% of the $1.3 trillion market opportunity. It is very unlikely we will
be number one in every market; however, we feel as though we have an
excellent chance to capture north of 30% of the aggregate market.
Reporter@Large: Wow, investors will certainly be interested to hear
that. So what has investors a buzz about B2B?
Buckley: You know, the logic of B2B e-commerce is undeniable and
investors are beginning to realize just how dramatically the Internet will
change traditional business methods by offering expanded access to new and
existing customers and suppliers, (traditional businesses can leverage the
Internet to obtain real-time, accurate information regarding requirements,
prices and products to a global audience).
This makes it easier for
businesses to attract new customers and suppliers, improve service and
increase revenue, (businesses can
utilize the Internet to automate their internal operations, including
manufacturing, finance, sales and purchasing functions. This increases
operational efficiency by reducing the time, costs and resources required to
transact business, lowering inventory levels and procurement costs, and
improving responsiveness to customers and suppliers).
Reporter@Large: Is the basket approach the winner for Internet
investors?
Buckley: I think investors appreciate that the holding company model’s the most effective way to garner significant market share in a fragmented
market through supporting each of our partner companies respective market
position in each of their markets. It’s really similar to the physisal
world where GE, Honeywell and Mitsuibishi aggregate B2B market opportunities
through their respective companies.
Final thoughts from Reporter@Large
Buckley has made a persuasive case. Internet Capital Group presents an
exceptional opportunity. Reasons?
1. It’s in a hot market. The holding company is focused exclusively on
business-to-business e-commerce.
2. It’s safer than going it alone. A built-in basket approach , similar to
a mutual fund, allows investors to diversify their risk.
3. You might get in on the ground floor. Public-market investors are
effectively able to invest in companies at private-market valuations.
Next week Reporter@Large will be entering the world of portals. As always,
there will be informative insight and “happy hour” where we talk to leading
executives in the sector.
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