Paradigm moves quickly
Financial News, MAR.28, 1999
Paradigm Ventures, the venture capital company set up by
Esprit Telecom founder Michael Potter at the end of January, has made its first
investment just two weeks after officially starting operations.
Potter believes he has found a
gap in the market because most venture capitalists and corporate ventures do
not move fast enough for the ever-changing world of telecommunications and the
internet. The view stems partly from his own experience when trying to raise
venture capital for Esprit in 1992, and comes despite the fact that two of the
most respected and nimble firms in the industry, Apax Partners and Warburg
Pincus, backed Esprit. "I have a view that the industry changes every 100 days,"
"A number of venture capital
firms have big unwieldy credit committees and it can take them five or six
months to approve an investment. The corporate venturing people can add value,
particularly in terms of strategic relationships, but their decision-making
process can take even longer than the venture capitalists."
Paradigm has certainly got off
the blocks quickly. It took Potter just one month to raise $100m, despite
officially still being an employee of Esprit. He would not say who the investor
were other than that they were prominent North American entrepreneurs from the
communications and software industries. The process was no doubt
speeded up by a substantial contribution from Potter himself, who made a
sizable fortune when GTS bought Esprit for 458m
in November 1998.
Potter did not approach
institutional investors because of the ease with which he raised the funds,
though he envisages taking his begging bowl out late this year or next. The goal is to generate annual
returns of 30% to 35%.
Paradigm took a 14% stake in
GlobalConnect, Denmark's fifth largest international bypass carrier, for an
undisclosed sum. GlobalConnect provides dark fibre and other high bandwidth
capacity to carriers and large users, including IBM and the Danish government,
and Competitive Local Exchange Connect services, giving users high speed local
connections to service provider infrastructure.
Jesper Hart Hansen,
GlobalConnect's managing director, declined to give performance figures, but
said that the company had always made a profit, though this may not be the case
over the next two years as an aggressive expansion programme is pursued. The
next phase of expansion will be a link with Hamburg in Germany.
Potter describes the company as
being like Fibrenet or Colt Telecom in their early days. Colt, which listed in
December 1996, now has a market capitalization of more than 6bn. Potter sees this investment generating
year-on-year returns of more than 100% over a five-year period.
It was Potter's operating
experience and knowledge of the regulatory environment - he has been a vocal
campaigner for the liberalization of Europe's telecommunications industry -
more than the money that appealed to GlobalConnect. Hansen says: "Having his
business knowledge on our side of the table and his active participation on the
board will create value well beyond the actual financial package."
Paradigm is looking for a
managing director, though the firm has a number of consultants paid on a
contract basis. All have considerable experience in "cyber-related industries",
which is what Potter says gives his company the edge over other venture
capitalists. Potter says: "We can add more value in terms of what is needed to
take a company to the next level."
Venture capitalists are
increasingly turning to people with industry experience to give them an edge
over the competition and maintain returns in an increasingly competitive
environment, but Potter is the highest profile figure on this side of the
Atlantic to go it alone.