Bloomberg
March 25, 2001Former GovWorks CEO Starts Firm to Work With Ailing Startups
03-26-2001
19:53 (New York)
By Hui-yong Yu
New York, March 26 (Bloomberg) -- The former chief executive of bankrupt Internet startup GovWorks Inc. said he started a firm to advise struggling Web companies and to invest in distressed companies.
Kaleil Isaza Tuzman, 29, a Harvard University graduate who worked at Goldman, Sachs & Co. for five years before starting GovWorks in 1998, said the new firm, Recognition Group, comprises an advisory arm that will help companies reorganize or wind down and a venture capital fund that will invest mainly in cash-starved technology companies.
The venture arm, known as Second Frontier Capital Fund, will be managed by Juan-Carlos Garcia, 37, a former investment banker with Spain-based Banco Santander Central Hispano SA. The fund has raised $15 million from an unidentified European financial institution and plans to raise at least $15 million more, Garcia said.
The collapse of Internet stocks has left many venture-backed companies fighting to survive. ``There's intrinsic value in a lot of these situations, and it's being overlooked,'' Tuzman said.
Tuzman said Recognition plans to use an outside network of turnaround specialists and co-investors in its activities. He said Recognition is currently working with four distressed companies, three in technology and one in retailing. He declined to identify them.
Prospects Questioned
Analysts wonder about the prospects of such ventures. ``An opportunity is in the eye of the beholder. As the market shakes out, there are going to be distressed companies. What remains to be seen is whether you can make a real business out of that,'' said Kirk Walden, national director of venture capital research at PricewaterhouseCoopers.
New York-based GovWorks filed for Chapter 11 bankruptcy protection in January. The company operated a Web site that allowed people to pay bills and taxes online and enabled communication among government agencies, consumers and businesses.
The company had raised almost $60 million of venture capital, including $39.2 million early last year from Mayfield Fund, executives of buyout firm Kohlberg Kravis Roberts & Co., American Management Systems Inc., Hearst Corp. and others. GovWorks had lined up a possible new round from investors led by J. & W. Seligman & Co., but the firm withdrew last November as the Nasdaq's losses deepened, Tuzman said.
Tuzman said he wants to use his experience with shutting down GovWorks to help other companies cope with challenges such as employee firings and negotiations with financial backers. ``I bring the perspective of someone who's made some mistakes and been through a crisis situation myself,'' Tuzman said.
Recognition has a staff of six and is self-financed. Its consulting arm will help companies find interim managers, provide technical and operational audits and wind-down analyses, and advise on asset sales and out-of-court restructurings. Its affiliate network includes Wayne R. Walker, founder of his own restructuring advisory firm and former interim CEO for the wind-down of Boo.com North America; Richard Tilton, former lead bankruptcy partner at law firm Greenberg Traurig, and Jacob Billig, former general counsel of Frontier Insurance.
The venture fund will focus initially on companies in online government, finance and payment-related technology. It will seek annual returns on investment of at least 30 percent, Garcia said.