Sep 4, 2014

Save Article The collapse of the telecommunications sector has forced Seattle-based Incepta Ventures LLC, one of the region's largest venture capital firms, to shutter its doors. Incepta will lay off all 19 of its employees here and at its London office, leaving a bare-bones staff of independent consultants to manage the 3-year-old firm's portfolio, said Jeff Leichtman, a spokesman for Bechtel Enterprises Holdings Inc. of San Francisco, Incepta's financial backer. "It's an unsettling time in the telecom industry," Leichtman said. "The entire industry is undergoing a broad-based re-evaluation and we're just seeing a lot less investment activity and opportunity. " Bechtel Enterprises is a subsidiary of privately owned engineering and construction giant Bechtel Group Inc., which generated $13.4 billion in revenues in 2001. John DeFeo, Incepta's senior managing director and former chief executive of US West Cellular, is one of the few Incepta staffers who will stay on to manage its portfolio, Leichtman said. DeFeo declined to comment. Leichtman said Bechtel will consider increasing its investment in telecom if a recovery occurs. DeFeo told the Puget Sound Business Journal in July 1999 that Bechtel Enterprises committed more than $500 million to the venture firm for investment in telecom. He said at the time that a typical Incepta investment would be $50 million, and Bechtel executives said they envisioned the firm building an empire of telecom businesses with assets worth as much as $10 billion. But according to Incepta's Web site, the firm only made eight early-stage investments during its existence, in high-risk niches such as competitive local telephone service, long distance, cable, DSL Internet access, wireless services and software for the telecom industry. Incepta has two funds — Incepta Communications Investments LP, raised in 1999, and Incepta Partners LP, raised in 2000. Leichtman declined to disclose the size of Incepta Partners. Venture Economics, a New Jersey-based division of Thomson Financial Inc. that tracks the private equity industry, provided data on five Incepta investments into which the beleaguered firm had poured $128 million. According to Venture Economics, at least two of Incepta's eight investments have soured. In August 2000, the firm sank $30 million into Louisville-based DSL company @Link Networks Inc., which ceased operations nine months later in April 2001. Incepta also invested in Omne Communications Ltd., a United Kingdom cable operator now in voluntary administration, which is similar to Chapter 11 bankruptcy reorganization in the U.S. Daniel Sedgwick, a marketing executive with Omne, would not disclose Incepta's exact stake in the company, but did say by e-mail that the Seattle firm is a "substantial investor. " Incepta's only local investment was Fulcrum Technologies Inc. of Seattle, which DeFeo backed with $4.5 million in April 2001. Fulcrum's chief executive, Brent Bauer, did not return repeated phone calls seeking comment. Other Incepta investments include OnFiber Communications Inc. of Austin, Texas, a fiber-optic local access operator that halted construction of its network in 2001 to conserve cash; StarOne AG, a privately held German provider of last-mile wireless access to small and medium-sized businesses; and Javelin Connections Holdings Inc., a Canadian Internet and voice services company. Jesse Reyes, vice president of research at Venture Economics, said Incepta started investing at the height of the telecom bubble and is now suffering for it. According to Venture Economics, Incepta invested $128 million in five of its eight deals. "That means they invested an average of $25 million in each of those five deals," Reyes said. "Those are big bets, so they needed to hit a home run on at least one of them. " David Hoover, an analyst with The Precursor Group Inc., a Washington, D.C., research firm that tracks the telecom industry, said the outlook for the sector is still bleak. "I think it'll work its way through, but it'll take two years for a recovery to begin," Hoover said. "I don't think we've hit the bottom yet in telecom and a full recovery is years away. " A number of factors block any substantial telecom recovery, he said. First, the industry has more network capacity than it needs, which has hurt earnings at equipment manufacturers such as Lucent Technologies Inc. and carriers such as Qwest Communications International Inc., Hoover said. In addition, the entire sector has been besmirched by accounting scandals and criminal wrongdoing investigations at firms such as Global Crossing Ltd., WorldCom Inc. and cable providers Adelphia Communications Corp. and Charter Communications Inc., he said. "It's really kind of a perfect storm of accounting scandals, capacity glut and the overall economic downturn," Hoover said. "So there isn't much investment banking or M&A activity in the telecom sector and there won't be for a while. " Reach Jeff Meisner at 206-447-8505 ext. 103 or jmeisner@bizjournals.com. Want Seattle Technology news in your inbox? Sign up for our free email newsletters. Industries