Portfolio Profiles – Spectrum Equity Investors –

MENLO PARK, Calif./Boston – Spectrum Equity Investors backs seed- to late-stage communications and information product and service companies in North America and Europe (story, page 44).

The firm’s $650 million Spectrum Equity Investors III LP, which launched in September 1998, held an initial close on $534 million in December, before wrapping in January 1999 well past its $500 million target, said William Collatos, a managing general partner at the firm.

At press time, the fund was about 60% invested in or committed to 20 companies, said Kevin Maroni, a managing general partner at the firm.

Spectrum typically invests between $10 million to $20 million in each company over several rounds of financing but has invested up to $61 million in one company, Collatos said, adding that the firm typically leads or co-leads investments and usually takes a board seat on its portfolio companies.

Fund III is investing alongside the $20 million Spectrum III Entrepreneurs’ Fund LP side fund, which closed in June 1999, to offer entrepreneurs and other strategic backers an opportunity to invest in and assist with portfolio companies, Collatos said.

Spectrum’s previous $252.5 million Fund II, which closed in early 1997, is fully committed to 18 companies, and the firm’s $108.6 million first fund is invested in 14 companies.

Limited partners in the fund include a mix of state pension funds, university endowments, foundations and high-net-worth individuals and families. Spectrum has a 2% management fee and an 80%/20% carried interest split.

Since Collatos and Managing General Partner Brion Applegate founded the firm in 1994, they have continued to add high-level investment staff along the way, Collatos said.

Spectrum in December recruited veteran VC Neal Douglas as a managing general partner. He previously was a general partner at AT&T Ventures, which he co-founded in 1993. Spectrum had co-invested with Douglas in past deals such as Tut Systems Inc., Paytrust, OnSite Access and Eureka Broadband Corp., and the partners believed that his communications and Internet expertise would add value to the firm.

Applegate, Maroni, Douglas and Collatos, are the firm’s four managing general partners, and they work with a team of 11 other investment professionals, all spread throughout the firm’s Menlo Park, Boston and London offices.

Spectrum expects to have Fund III completely committed to about 30 companies by the end of the year and plans to raise a larger, fourth fund sometime during 2000, Collatos said.

Following are some of Spectrum’s portfolio companies:

Adero Inc. (Boston) is an Internet infrastructure provider capable of bringing Web-content and end-users closer together, facilitating global e-commerce.

Co-investors included Fidelity Ventures and Media Communications Partners.

American Cellular Corp. (Chicago) is a rural cellular telephone carrier.

Providence Equity Partners, Sandler Capital Partners, Tandem Wireless Investments, Triumph Partners and First Union Investors were co-investors.

CTC Communications Corp. (Waltham, Mass.) is an integrated communications provider, offering business customers voice, data and Internet integration services with account management services.

There were no co-investors.

Eftia OSS Solutions Inc. (Ottawa, Canada) provides operational support system products, which maintain the service management and delivery needs of telecom service providers.

Co-investors included Apax Partners, GSM Capital LP and InSight Capital Partners.

Golden Sky Systems Inc. (Kansas City, Mo.) is a provider of digital satellite television, including DIRECTV satellite programming services and equipment.

Co-investors included Alta Communications, BancBoston Capital, Norwest Venture Capital, HarbourVest Partners, Blue Water Capital and GE Capital Services.

Illuminet Holdings Inc. (Olympia, Wash.) provides network, database and billing services to the communications industry in both wireless and wireline markets.

There were no co-investors.

ITXC Corp. (Princeton, N.J.) is an Internet telephony carrier that sells its services to a network of originators and terminators.

Chase Capital Partners, Flatiron Partners, Intel Corp., VocalTec Communications and DS Polaris Ltd. were co-investors.

Jazztel (Madrid, Spain) is an integrated facilities-based communications provider throughout Spain and Portugal.

Co-investors included Advent International, Apax Partners and Dresdner Kleinwort Benson.

Kestrel Solutions Inc. (Mountain View, Calif.) is a fiber optic equipment supplier to metropolitan area networks.

Co-investors included BankAmerica Ventures, Information Technology Ventures, Polaris Venture Partners, Advanced Technology Ventures and Carlyle Venture Partners.

Network Access Solutions Inc. (Sterling, Va.) is a bandwidth provider that also offers clients network design, installation, staging, monitoring and consulting services.

FBR Technology Venture Partners was a co-investor.

Paytrust (Princeton, N.J.), through its Paytrust system, is an online provider of bill delivery, payment and a management.

Co-investors included SOFTBANK, American Express, GE Capital, Goldman, Sachs & Co. and AT&T Ventures.

Tut Systems Inc. (Pleasant Hill, Calif.) is an Internet access provider for multi-tenant buildings, including apartments, dormitories, hotels and commercial properties.

Co-investors included Microsoft Corp., Apex Investments, Investment Advisors Inc., Vanguard Venture Partners, AT&T Ventures, Compaq Computer and Intel Corp.

Spectrum Equity Investors is located at 333 Middlefield Road, Suite 200, Menlo Park, Calif. 94025, tel: (415) 464-4600, fax: (415) 464-4601. The firm’s other headquarters is located at 1 International Place, 29th Floor, Boston, Mass. 02110, tel: (617) 464-4600, fax: (617) 464-4601. The firm’s Web site may be found at www.spectrumequity.com.