One of the largest venture capital deals in Canadian history has been quietly unwound, leaving numerous questions surrounding American Capital Strategies' ( ACAS) $130 million investment in a once-promising start-up Internet company. In March 2007, American Capital announced it had invested in Geosign Corp., a little known Ontario-based Internet publishing company. The Bethesda, Md., investment firm said the proceeds were to be used by Geosign for working capital and to support the firm's "strategic growth initiatives." The question now is whether that investment has soured. In October, American Capital and the entrepreneur behind Geosign split the company in two. The news was first reported in the Canadian newspaper The Record. American Capital never issued a press release relating to the split, but confirmed the move to TheStreet.com. While the reason for the split-up -- and its ramifications on American Capital -- are unclear, the move raises questions about the value of Geosign and the potential for writedowns on the investment. Any writedown of Geosign would be troublesome for American Capital investors because the company relies on the markup or sale of its investments to cover its dividend.
The split-up of Geosign came after layoffs of a big percentage of the company's workforce. At the time of the investment by American Capital, Geosign said it had 230 employees and annual revenue of more than $100 million.