MCI takes hit on investments, but plans to stick to tech
By Aleksander Nowacki
Wrocław-based venture capital fund MCI Management has taken losses on two investments it exited this month. Despite criticisms from market insiders of its sector-focused investment strategy, the fund, which targets start-up projects in IT systems integration, niche product distribution and IT consulting, does not intend to branch out into other sectors.
After posting losses last year on IT services firm Cubeteam.com and web portal poland.com, MCI Management suffered two more setbacks this month, when it sold its stakes in Internet firms Synergy Polska and Expertia at cut-rate prices.
Expertia, an insurance services provider, was acquired by Progress Services, a strategic investor that had entered the firm last autumn and has now taken over MCI Management's remaining 40 percent stake for zł. 250,000. MCI had invested zł. 4 million in the company. Last year Expertia posted a zł. 326,000 loss on sales of just zł. 98,000.
"We want to concentrate on the most prospective investments in our portfolio," Tomasz Czechowicz, MCI's president and chief shareholder, said of the exit. The fund's portfolio includes 10 companies specialized in Internet services and integration, as well as real estate properties in Wrocław and Warsaw. It is the country's only exclusively technology-oriented venture capital fund.
The fund sold Synergy Polska to two strategic investors, Management Consulting Group and Syriusz Management, who paid a combined zł. 250,000 - half of what MCI had sunk into the company - for a 72 percent stake in Synergy. A 100 percent provision was set aside for the investment last year. MCI named Synergy's continued failure to meet its financial targets and its unattractive business model as the reasons for the exit.
MCI has recorded net losses over the last two years, raising doubts as to the wisdom of persisting in tech-focused investment strategies following the sector's bust in 2001. According to Paweł Gieryński, president of asset management firm Copernicus Finance, the business model of sector-oriented, single-country funds fell out of favor with investors after the bursting of the technology bubble two years ago.
Yet the model still has its aficionados. Czechowicz insists that the fund's expertise in managing companies in the technology sector will allow it to select the right niche investments in the sector. While its strategy focuses on start-up projects in integrators and IT consulting companies, MCI has also expressed interest in the development of wireless communications technologies, including those based on the Wi-Fi protocol, on the local market.
The discouraging results of its previous ventures in the field of Internet start-ups has led the fund to abandon any plans to further invest in them. Czechowicz said, however, that the fund is interested in pursuing buyout investments in dot.com companies. "We would look at the opportunities of restructuring attractive Internet projects with a stable market position," he said.
Czechowicz added that MCI plans to make an average of two investments per year in the near future. The fund has cash at hand following its December 2000 public listing.
