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November 19, 2001
[Venture Capital]

High-Profile 12 Entrepreneuring
Will Shut Down, Return Funds




High-profile incubator company 12 Entrepreneuring Inc., which raised $130 million to start new technology companies, is shutting down.

Halsey Minor, 12's co-founder and chief executive officer, announced to its staff late last week that it will shut down as soon as January and return money that it hasn't invested to its financial backers. Two of the start-ups funded by 12 will continue operations.

The San Francisco company (www.12.com), which attracted money from an all-star list of investors, was formed to organize and fund companies, take them public and ultimately go public itself. But incubators, as such businesses became known, have struggled in the Internet implosion of the past 18 months. Shares in CMGI Inc. were at $2.62 on Friday from a high of more than $160 at the beginning of last year, and idealab, another prominent incubator, has seen a host of its companies fail and pulled plans for a public offering last October.

The demise of 12 ends a battle between the company and a group of investors that Mr. Minor said included Netscape Communications Corp. co-founder Marc Andreessen and Ron Conway, a well-known Silicon Valley investor. In the dispute, which spilled out into the press in the past week, some of the investors charged that the company had spent too much, given the results it had produced.

"We're pleased that the action was taken to correct the overspending," Mr. Conway said.

In its short life, 12 invested about $33 million in three companies: iBuilding Inc., a company that provided Web services for the real-estate industry that was shuttered in September; Grand Central Networks Inc., which runs a network that helps improve the way various software programs work together, and Oxygen Software, which is developing business-process software.

Based in San Francisco, 12 was started in February 2000 by Mr. Minor, founder of Web publisher CNET Networks Inc. and Eric Greenberg, founder of Web consultancy Scient Inc. Messrs. Minor and Greenberg and venture firm Benchmark Capital put the first $30 million into the company, and in June investors including investment banks Goldman Sachs, Morgan Stanley and Merrill Lynch added $100 million in a financing round that valued the company at $750 million. Mr. Greenberg left 12 late last year after conflicts with Mr. Minor.

[Go]Incubator 12 Entrepreneuring Set to Launch Second Venture (June 18, 2001)

[Go]12 Entrepreneuring Investors Seek 12-Figure Capitalization (July 17, 2000)

Pierre Omidyar, founder of Internet auctioneer eBay Inc., Ted Waitt, founder and chairman of computer maker Gateway Inc., and Harvey Golub, former chief executive of American Express Co., were directors of the company.

Among sore points between investors and the company were that 12 committed to a 10-year lease of $3.4 million dollars a year for fancy offices in San Francisco's financial district and paid about $12 million on outfitting the office space.

Mr. Minor conceded that spending was high, but said it was understandable considering the tight real-estate market in the months before the Internet bubble burst. "There are some things that we did that are simply a product of starting a business in February of 2000," he said. For example, he said, the $60 a square-foot per year 12 is paying was well below market rent when the company was looking for space in February of last year.

Of the $130 million invested in 12, about $78 million remains and, after the company takes care of obligations such as its lease and severance and invests an additional $15 million in Grand Central, investors will get back about a third of their investment and shares in Grand Central and Oxygen.

And Mr. Minor added that he is confident that the two remaining companies will ultimately produce substantial returns for investors. "We've got two companies and we'll see how we do," he said. "Only time will tell if I'm right."

Write to Lisa Bransten at lisa.bransten@wsj.com


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