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Technology Stocks : divine interVentures, Inc. (DVIN)

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To: Glenn Petersen who wrote (231)3/2/2003 2:30:08 PM
From: Glenn Petersen  Read Replies (1) of 246
 
Divine saga leaves some richer--in experience

By Barbara Rose

Tribune staff reporter

siliconinvestor.com

March 2, 2003

In the summer of 1999, while the U.S. stock market defied gravity, the Internet's true believers were convinced technology had ushered in an age of unparalleled opportunity.

No local figure represented this new religion more conspicuously than Andrew "Flip" Filipowski, whose gift for salesmanship and network of well-placed friends--including Mayor Richard Daley--gave him a platform to promote a company that promised to make Chicago a high-tech capital.

"We want to make Silicon Valley a real bad choice" for starting a business, he told a standing-room-only crowd of professionals and CEOs at a meeting for prospective investors in Lisle in 1999.

How his plan played out over the next 3 1/2 years at Divine Inc., which filed for Chapter 11 bankruptcy Tuesday after losing nearly $1 billion, reveals as much about Chicago's aspirations and the national fallout from an investing bubble as it does about Divine's 52-year-old founder.

Filipowski filled a void in a region that feared getting left behind. He seeded scores of ventures that failed, leaving Chicago to shrug off Divine's legacy of losses.

But some of the entrepreneurs he backed persevered, personally richer from their experience.

"I didn't benefit financially, but I saw the company I founded grow and prosper," said Nate Weersing, who quit Divine two years ago to join Chicago's SEI Information Technology Inc. "That's the positive legacy."

It took a larger-than-life persona to mobilize Chicago's eager strivers. And Filipowski, a rebellious son of Polish immigrants and a workaholic with a flair for the dramatic, filled the bill.

Fresh from having sold his public software firm, Platinum Technology International, for $3.5 billion in what was then the industry's biggest merger, he had both cash and credibility.

While scores of entrepreneurs came to him in 1999 for financing, the corporate elite, from William Wrigley Jr. to Tellabs CEO Michael Birck, put millions of their personal wealth on the line.

Major corporations like Microsoft Corp.--now one of Divine's biggest unsecured creditors, owed $1.9 million--invested hundreds of millions in Divine's initial public offering on the gamble that they would recoup their equity in future sales to the start-up.

For his part, Filipowski invested about $30 million of his $290 million from Platinum's sale.

"It wasn't just Flip making a promise" to boost Chicago's fortunes, said Karen Andre, Filipowski's former marketing director. "It was the market being receptive to a leader who would go out there and pave the way."

Results off target

By the time Divine ran through most of its cash late last year, the company little resembled Filipowski's vision.

Most of its start-ups had failed, and the larger companies acquired during Filipowski's bottom-fishing binge all were located outside Chicago: a Web hosting company in Texas, a telemarketing software firm in Georgia, a now-bankrupt library subscription management service in Massachusetts.

Despite buying some well-regarded products and services and a workforce of more than 3,000 at peak, Divine made little impact on the fragmented market niche on which Filipowski focused: helping corporations manage information and customer relationships.

The leading candidate to buy its assets, private equity firm GTCR Golder Rauner LLC, is likely to break Divine into two or three of the companies Divine bought, then sell or close the others.

"No one took on anything as massive as Divine tried," said Andrew Schroepfer, president of Tier 1 Research in Plymouth, Minn. "[But] they acquired too many weaker companies in too many different industries."

At Filipowski's 1999 meeting in Lisle, he held his audience for more than one hour, describing his plans while standing next to a rendering of Divine's original logo, a Japanese fish called a koi.

"When we go through life we want to leave a trace, a sort of legacy," he said, "like the trace a koi leaves in a pond."


Divine's most immediate legacy is shareholder losses and layoffs--an estimated 500 employees in February alone, leaving 1,748 worldwide.

Its stock, which likely will be worthless when Divine's bankruptcy reorganization is complete, remained at 7 cents Friday.

Upside remembered

But for some entrepreneurs, the legacy is positive.

Weersing, the SEI executive, was 27 in 2000 when the company he cofounded in 1997, Westbound Consulting LLC, was running short of money.

The firm offered lower-cost services using programmers in India, but despite the booming market for information technology consulting, it was too small to compete for corporate contracts.

Divine came along, offering Weersing and his partner $1 million to expand.

"There aren't a lot of places to learn how to deploy $1 million when you're 27 years old," Weersing said. "Divine helped entrepreneurs make real decisions with real money behind those decisions."

Weersing, now based in London, is drawing on his Westbound experience while opening a European operation for SEI.

Westbound, meanwhile, survives as part of Divine, which operates a sizeable programming center in India.

Other entrepreneurs are among Divine's biggest unsecured creditors. Several around the country are owed six-figure severance payments, representing Divine's buyouts of employment contracts that they negotiated when selling their companies to Divine for stock during its merger binge.

Chicago's Paul Cooper and Peter Prokopowitz left Divine in December, leaving behind the technology and customers they developed since 1996 at software firm Perceptual Robotics Inc., which operates Web cameras for corporate customers.

Filipowski was an early investor in PRI. Divine bought a stake in 1999 and acquired the remainder in 2001.

"I think of Divine as a caricature of the whole Internet bubble," Prokopowitz said. "It's not what will take Chicago to the forefront of the high-tech world.

"[What will] is the collection of entrepreneurs. You can't look to somebody like Flip to make it happen for us."

Filipowski and his longtime chief financial officer, Michael Cullinane, have been unavailable for interviews in recent weeks.

Divine is facing big legal problems, including a suit claiming the company illegally diverted $74 million from its now-bankrupt library subscription subsidiary, RoweCom Inc.

A settlement is considered likely, but the RoweCom claim complicates Divine's reorganization and sale.

Meanwhile, it's never wise to count Filipowski out.

An inveterate entrepreneur, his business ventures include Blue Rhino Corp., a hot Nasdaq company that lets customers exchange their propane grill cylinders at convenience stores and other outlets.

Blue Rhino is set to soon launch a new product, SkeeterVac, which uses propane to attract and kill mosquitoes.

On the day Divine filed bankruptcy, Blue Rhino was anything but blue. It reported a net profit for the quarter ended Jan. 31, and sales were up 50 percent.


Copyright © 2003, Chicago Tribune
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