EXODUS FUND TAPS ADVISOR FOR DISTRESSED ASSETS SALE

Venture Asset Group, a company that sells the distressed assets of troubled telecom firms, will advise the estate of now-defunct Exodus Communications on the divestiture of the investment portfolio the Web hosting company established before going bust.

The action could show some direction for other company-owned investment funds that, by and large, have remained dormant since telecom's rapid economic slide began two years ago.

Alvarez and Marsal, the crisis management firm that has been overseeing Exodus' former venture fund since most of the company was acquired by Cable & Wireless earlier this year, tapped Venture Asset Group for “advisory services related to the restructuring of its private equity and debt investment portfolio.”

An Alvarez and Marsal official could not be reached for further comment.

However, Sean Doherty, co-founder of Venture Asset Group, said his firm would assess the status of the portfolio companies and determine a sale value for each investment with the intention of selling the entire portfolio, likely in piecemeal fashion. “They [EXDS, the remaining Exodus estate] need to monetize what they can from what is left. The money made from any sales with go to Exodus' creditors,” he said.

The portfolio was recently valued at about $200 million and represents various sizes of investments held in 17 private companies. Doherty said the buyers could include storage and Web-hosting companies or speculators, including VC firms looking to pick up investments cheap and turn those companies around.

“In a bankruptcy, everybody's focus is usually on the big assets, which are very hard to find buyers for right now. There can be liquidity in small assets,” he said.

Exodus was just one of many telecom companies to set up corporate venture capital funds during the industry's boom era in the late 1990s. Intel Capital, Lucent Venture Partners and ADC Ventures are other examples.

Such company-owned funds have remained mostly dormant since mid-2000. An ADC spokesman said of his company's fund, “ADC still maintains its venture fund. We are not actively looking for investments now, and our current portfolio is purely focused on financial results vs. any strategic product or technology relationship to ADC.”

The exception has been Intel Capital. Craig Barrett, the president and CEO of Intel Corp., told Telephony back in June that Intel Capital would continue aggressive investing. “There may not be a better time to invest in young companies,” Barrett said. “The business models now have an eye on the bottom line.” The company has since made good on Barrett's intention, most recently investing in Wasabi Systems, a much buzzed-about network software firm.

Meanwhile, other corporate VC funds could be going the way of Exodus'. Hewlett-Packard is rumored to be exploring a sale of its venture fund assets. Also, speculation is stirring about the fund belonging to now-bankrupt WorldCom that was once valued in excess of $1 billion. The embattled long-distance giant so far has not indicated what it will do with the portfolio. “If I'm a WorldCom creditor, I want them to get money for anything they can right now,” said Doherty.

“These venture funds present a lot of stuff that nobody wants to pay attention to now. A lot of CFOs don't want the blemish of board-level association with a portfolio of investments that hasn't panned out,” said Doherty. “That's something nobody thought about when they made these investments.”