Lycos Founder on Venture Capitalism

    March 8, 2004

Bob Davis, a partner with Highland Capital Partners, offered his insight into the world of investment banking during a presentation at last week’s Search Engine Strategies conference.

Davis started Lycos back in June of 1995. In 1999 Lycos became the search industry’s “little engine that could” when it surpassed Yahoo for searches. It also had the fastest move to IPO in NASDAQ history. In just five years, it became a multi-million dollar business under Davis’s leadership.

However, Davis sold Lycos to Spain’s Terra Networks in 2000, saying, “We got out of dodge just before the sheriff showed up.”

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He joined Highland Capital Partners just 36 hours after he sold the company. Highland Capital Partners, a firm specializing in digital media, has been around since 1988 and has $2 billion in funds. The company’s investments are almost exclusively health care (25%) and technology (75%).

One area in which the company recently invested was a massive multi-player online role-playing gaming (MMORPG) company. This section of the gaming industry is great, Davis says, because it has a consumer-based audience growing in a mass distribution channel with a recurring revenue model. These types of games are growing very, very quickly in Asia at the moment.

During his speech at the New York-based conference Davis discussed some of the qualities Venture Capital firms look for when determining funds. Highland Capital funds twelve to twenty-four companies per year with investments ranging from $100,000 to $50 million on average.

His firm is stage agnostic and will invest in a company with a proven track record as well as your average small business owner who’s just working out of his house.

When choosing a company to invest in, Highland Capital Partners considers people, markets, and products, Davis says. Davis says Highland Capital looks for smart entrepreneurial and driven businesses with large markets and diversifiable products with high growth potential. The company seeks intelligent teams that know who and what they’re competing with and clearly understand the marketplace.

Highland Capital provides not only money but a network of collective knowledge. It has a wealth of already established business relationships so it can provide leads to its startup companies. Additionally, it could possibly provide employees as well thanks to its strong network of top players.

Companies that are torn between venture capital and organic growth should consider the fact that a venture partnership is 50% money and 50% knowledge. If the opportunity is there, Davis said, a company should take it.

Having lived through the Dot-Com crash himself, Davis talked briefly about the reason behind why some online companies go bust, saying these companies often have no concept of priced earnings or even earnings at all.

When asked whether he would invest in search technology such as a new search engine algorithm, Davis replied, “Yes, in a heartbeat.”

However, when questioned about Microsoft’s upcoming leap onto the search engine field, Davis is more critical. The anticipation of the software giant’s arrival in the search industry has gathered bluster from both devoted Microsoft supporters and hardcore foes but all this turbulence is nothing more than hype, according to Davis. “Microsoft has been banging its chest and saying, Here we come for a long time,'” he said.

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