Will ICG Be the New CMGI?

The e-commerce venture capital fund is planning its IPO.
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You'd probably never heard of CMG Information Services before the obscure direct marketer morphed into CMGI (CMGI) , the Internet venture firm with a rocket-powered stock. Shares of CMGI, the new majority owner of AltaVista, and an early backer of Lycos (LCOS) and Geocities among others, have soared 14-fold in the past year. But not many investors knew the CMGI story a year ago.

The good news is, you will soon get the chance to buy shares in a company that could well become the next CMGI:

Internet Capital Group

. The Wayne, Pa.-based company, which has been investing almost exclusively in business-to-business e-commerce companies, has filed for an initial public offering expected to be completed before the end of the summer. It's a big deal: ICG's proposed valuation tops $1 billion.

That's $1 billion-plus for a portfolio of companies that had first-quarter revenue of $3 million. Investors won't be buying ICG shares based on the underlying business fundamentals of its investments, though. Rather, they'll be looking to invest in an unusual business model: a publicly traded venture capital firm.

So far, four-year-old ICG has been a solid success. For instance, it netted $29 million on a seed investment in


, which was acquired by


; it also racked up a $5 million profit on an early investment in


, which was acquired by Lycos.

In its biggest success to date, ICG paid $21 million for a 37% stake in



, a business-to-business e-commerce portal based in Horsham, Pa. VerticalNet went public in February, and ICG'S stake is now worth about $700 million.

Two other ICG holdings are nearing IPOs of their own:


, which used to be the newsgroup site Deja News and now offers Web surfers the chance to comment on a variety of products and issues, and

Breakaway Solutions

, a systems integrator. Deja.com, in which ICG holds a 32% stake, filed in mid-June to go public, with plans to raise as much as $57.5 million.

Boston-based Breakaway Solutions, in which ICG holds a 57% stake, is expected to file for a public offering shortly. Included among the 35 ICG portfolio companies that aren't close to achieving their own "liquidity events" are plays in chemicals, paper, plastics, construction, printing, auto parts and consulting services. It's a gritty bunch that lack the glamour of


(EBAY) - Get Report



(AMZN) - Get Report




-- but they could still produce big revenue.

An Internet Capital Group executive declined to comment, citing the obligatory quiet period before its pending IPO. But the company has been discussing its strategy since it opened shop in 1996. ICG's early focus on business-to-business may once have seemed a little loopy -- but no longer, with business-oriented sites moving to center stage in the hunt for hot Internet investments.

Even their would-be competitors are impressed. "They caught a wave," says Robert Kagle, a partner at

Benchmark Capital

, a Menlo Park, Calif., venture capital firm that has been a heavyweight in business-to-consumer Internet ventures. "They have as interesting a collection of B-to-B investments as anyone out there."

The ICG collectors begin with CEO Walter Buckley, a former mergers and acquisitions executive with

Safeguard Scientifics

(SFE) - Get Report

. Safeguard, also based in Wayne, is best known as an early investor in




Cambridge Technology Partners


. Safeguard is also ICG's single biggest investor, with an 18% stake. Other major investors in ICG include





(CMCSA) - Get Report


General Electric Capital


ICG's connections go deeper than grubstakes from industrial behemoths. The company has slavishly followed one of Silicon Valley's favorite strategies for priming the stock market and potential customer base by setting up an advisory board of industry heavy hitters. The model is simple: Recruit big shots, give them stock and get their wisdom for the benefit of portfolio companies. ICG's advisory board includes execs from

Cisco Systems

(CSCO) - Get Report



(KO) - Get Report


Exodus Communications




(IBM) - Get Report


Merrill Lynch


. Not coincidentally, Merrill is lead underwriter for ICG's offering.

On one level, it is somewhat disturbing that ICG wants to go public at all. Venture firms historically maintain funds that take years to pay off, making quarterly performance effectively meaningless. But ICG has said it wants to be a combination of a venture-capital firm, a leveraged-buyout company that can commit large amounts of capital, and a G.E.-like holding company, lending the expertise of its top brass to each partner company.

And of course, ICG wants to participate in the craze for Internet stocks through its investments and through its own stock. But that part, you already knew.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a monthly column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at