Novell Inc. is putting a small chunk of its billion-dollar bankroll to work. The company announced in January the creation of a $50 million fund that will be used to financially seed sompanies with promising networking and Internet technology. It raided one of its own bright offshoots - Novonyx - to find an able manager to oversee the project: Rob Hicks.
Since the announcement, Hicks said he's been inundated with calls from entrepreneurs.
"I stopped counting (in early February) when the number was over 200," he said. The idea of high-tech companies investing in firms that have complimentary technology or products isn't news. Most large companies make it a practice. It gives them fast access to developers and ensures that there are a variety of applications that work with their core products.
Intel has an investment fund. So does Microsoft. Lucent Technologies recently announced plans to sprinkle $100 million around startup ventures.
"Many companies have done this same thing and been successful at it," said David Coursey, editor of the industry newsletter Coursey.com. "They all have these funds that they use to help startups in areas they care about. Intel tends to do it for people with entertainment applications that use a lot of computer power so people have to buy new computers.
"A company with as much money sitting around as Novell has ought to put that money to work," he said. "It's a good strategy to place bets around."
In fact, Novell has quietly invested in outside companies over the past decade but since securities disclosure rules didn't require it, drew little attention to its activities, Hicks said.
"Novel has received a great return on those investments," he said, though he wouldn't reveal the names of the firms. One of its "investments," though, is Intelogis, the American Fork company producing power line networking technology. Novell has an equity interest in the company.
It has also, like many companies, made public splashes by acquiring and merging with companies. Novell's track record with this "old-fashioned" method of gaining access to technology is spotty, however.
In 1987, when Novell was just 4 years old, it went on a buying spree. It snatched up Santa Clara Systems Inc., Softcraft Inc. and CXI Inc. In 1989, it acquired Excelan.
In the early '90s it purchased technologies that were, to put it kindly, ill-advised or poorly integrated into the company. They include:
Novell bought out AT&T's interest in Unix System Laboratories in February 1993 for $350 million. In 1995, Novell sold the Unix technology to Santa Cruz Operations and stock and royalty fees (up to $84 million) through the year 2002.
It bought Quattro Pro, a spreadsheet application, from Borland International in 1994 for $145 million and included it as part of the WordPerfect deal it made with Corel Corp.
Novell paid $855 million for WordPerfect in mid-1994 and sold the company to Corel Corp. a little over a year later in a deal valued at $180 million.
David Bradford, a senior vice president and legal counsel at Novell, acknowledged the folly of some of these deals in a 1996 speach he made in Salt Lake City.
"We'd have been better served by investing in at least one instance," he said.
Coursey puts it this way: "Think of what they could have done if either sum that had gone into Unix or WordPerfect had gone into an investment fund."
But most observers don't fault Novell for not moving quicker to set up a publicly visible investment venture.
"Investing money has been one of the least of Novell's problems," said David Politis, founder of Politis communications in Draper. "It needed to get its management problems ironed out. Novell rightly was more focused on keeping the company afloat."
Novell claims to be making progress in that direction. Eric Schmidt, who joined the company as CEO a year ago in April, has streamline management and set the company on a course that clearly revolves around the Internet and other networks.
"The company is executing plans it outlined last year to become the leading provider of network platforms with advanced Internet services," he said two weeks ago as the company released its first quarter results.
Schmidt said the quarterly results show Novell has "stabilized" its business - but the results also clearly indicate ample room for improvement.
Novell had earnings of 4 cents per share for the quarter, double the consensus of analysts reported by FirstCall. While Novell reported a profit of $14 million, that was of 72 percent from the previous year. And sales were down 33 percent.
Stable? Maybe. Full steam ahead? Not yet.
The investment fund is clearly part of the fuel that may fire that movement, though.
Hicks said Novell executives were already considering setting up an investment fund when Schmidt arrived at the company. But Schmidt made clear his own view that Novell needed to extend its partnetships.
"A lot of people inside Novell felt it was the right thing to do," Hicks said.
It may be, however, that Novell really had no choice. The word is that Novell is sturggling to get developers to write applications for is products in light of Microsoft's vigorous effort to push Windows NT as the networking platform of choice.
"One of the ways that Novell can begin to change the perception that it's lost the network platform battle to Microsoft is to get more develope writing code for programs that work with NetWare and other Novell products," Politis said. "If investing in these companies helps achieve that then it's been a great success."
And unlike the past, this time Novell will be banging the drums when it drops money into a venture, Hicks said.
"We are going to be much more open abut the companies we're investing in," he said. "As we close investments, you will see tombstone-type ads abut the investments."
The companies it will embrace will be those that help further the Provo company's goal of becoming the premier network platform for distributed computing and access the Internet.
That, Hicks said, is "the future of computing - to run applications anywhere on the network and not have to know where they are and what they are doing. The browser is only the tip of the iceberg of distributed computing."
It will specifically target leading-edge, development stage companies that are building Internet and intranet applications. Many of the startups that have approached hicks are writing Java-based applications - the technology develope by Sun Microsystems, for whom Schmidt previously worked.
Hicks, who is the sole employee dedicated to the Internet Equity Fund, will rank the pitches he receives based on how well they fit strategically with Novell's goals.
"We're looking for companies to partner with that have the ability to change the mix of mind share out there (about Novell)," he said.
In other words, hot companies that help Novell appear progressive and aggressive.
Other key factors will be the potential return on investment and a solid management team with "ability to execute."
"If it helps you manage your network or helps your application run better on a NetWare server, it is a good investment for Novell," said Coursey, who adds that the seed money may attract companies that otherwise wouldn't build a NewWare version of a server application ot be interested in Novell.
Much noise has been made about Microsoft's penchant for spreading its money around the technology industry, investing in or outright snapping up promising technology companies and thus getting them to develop applications that only work with its proprietary standards.
"Novell is more of a democracy and always has been," Hicks said. "Coopetition (a word coined by founder Ray Noorda) is more pertenent than ever. If you were to contract investments from Microsoft and Novell, one is playing in the open space and one is following a Microsoft dominated solution.
"You have to ask if that is good or bad for the entire economy. We think that it's bad that one company dominates and everybody else goes out of business," Hicks said.
"No one company in a networking environment can do everything, despite what a company up in Redmond (Microsoft's home) might think," he said. "Through these partnerships we will encourage companies to work with Novell and to provide open solutions."