[linux-elitists] [SCO] Integral Capital Management?

Larry M. Augustin lma@lmaugustin.com
Mon Sep 1 09:30:40 PDT 2003


John Beimler wrote on Friday, August 29, 2003 8:29 AM
>Jonathan Corbet wrote:
>> Amongst today's pile of regularly scheduled 10b-5 share dumps by SCO
>execs
>> is this interesting document:
>>
>http://www.sec.gov/Archives/edgar/data/1102542/000095000503000879/p17611_sc
>13g.txt
>>
>> It describes the acquisition of 324,550 shares (price unspecified) by a
>> twisted maze of companies with names like Integral Capital Management V,
>> LLC, ICP Management V, LLC, Integral Capital Partners V, L.P., Integral
>> Capital Partners V Side Fund, L.P., and several others.
>>
>> ICP appears to be some sort of venture fund; they are at
>> http://www.integralcapital.com/.  They don't list SCO in their portfolio,
>> though that might just be a matter of time.
>>
>> One wonders if this group just fed $5m into SCO, and, if so, why?

Don't read too much into this.

Integral Capital Partners is a "crossover" fund.  (More specifically, the
firm manages a set of crossover funds.)  They invest in late stage private
and early/high growth public companies.  They also invest in buy-out
opportunities; i.e. they will buy a public company or piece of a public
company and take it private.  From their Web site, 50% to 80% of each fund
is invested in pubic companies, and the balance in private companies.

They did not just feed $5M into SCO.  It appears that they have purchased
SCO shares on the open market, just as you or I might do, and now own a
large enough portion of the company that they need to disclose their
ownership to the SEC.  SCO doesn't see any of that money.  ICP is just
betting on the SCO share price, like any other investor buying SCO stock.

The "twisted maze of companies" is a very common and comparatively simple
structure for an investment firm.  There's absolutely nothing uncommon or
unusual in their structure.

Typically, a venture fund consists of three limited partnerships: 1) the
general partner, who manages the fund; 2) the big limited partners who each
contribute large amounts (maybe $5M to $10M minimum each) to the fund; and
3) a "side fund" with individual investors who may be contributing amounts
as low as $10,000.

Hence, you have:

Integral Capital Partners Management V - The general partners who manage the
fund.

Integral Capital Partners V - The main investment fund with the large
institutional investors.

Integral Capital Partners V Side fund - The side fund with smaller
individual investors.

I could go into more detail, but suffice it to say that there are three very
different groups of people involved, and hence three very different LP
agreements.

On top of this, the general partners manage multiple funds.  So you have
"Integral Capital Partners IV".  Again, there's nothing unusual about this.
Each fund has a fixed amount of $$ commitments, and a fixed maximum
investing period, and typically you raise a new fund when the previous fund
is 60% to 70% committed.  Some overlap happens between funds.

Again, my point in all this discussion is that there's nothing unusual here.
This just looks like a typical institutional investor betting on a company's
stock.

>Groklaw (http://radio.weblogs.com/0120124/) had an idea on why, but the
>post has dissapeared, here's what I had of it:
>
> > Small World Dept.-- Or a MS Connection?
> > ...
> >
> > Google had almost nothing listed for this investment entity. Why, I
> > asked myself, would they be buying now? Maybe a golf buddy or
> > something like that, trying to help out? Here's a list of some of the
> > other companies they have invested in.
> >
> > Just when I thought I'd hit a dead end, I started to read
> > Drugstore.com's 10Q, their most recent, just filed this month. Because
> >  this is the other company Integral has invested in heavily, maybe I'd
> >  find something there.
> >
> > And lo and behold, guess who was just elected a director of
> > Drugstore.com? Melinda French Gates. Yes, that Mrs. Gates.
> >
> > As of last December, Integral Capital Management didn't own any SCO
> > stock, according to this SEC filing, just Drugstore.com and the other
> > companies you see on the list. They didn't own any Microsoft stock
> > back in December either. Now they have invested in all three
> > companies.
> >
> > Small world, isn't it?

Yes, it is a small world.  So Melinda Gates is on the board of directors of
a company that ICP has also invested in.  So what?  Six degrees of
separation - so what?

ICP thinks that Microsoft is a good investment.  ICP thinks that SCO is a
good investment.  ICP thinks that Drugstore.com is a good investment.  Heck,
maybe someone at ICP knows Bill Gates personally, trusts Bill's stock
recommendations, and Bill recommended all three.  Maybe Bill is an
individual LP in the ICP funds.  Maybe not.  Who cares?  Remember, Bill was
an investor in Red Hat, and ultimately owned Red Hat stock because he was an
LP in one of the funds that invested in Red Hat.

There's no money flowing into SCO here.  There's no conspiracy here; just an
investment fund buying a company's stock because they think they can make
money.

Larry





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