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September 6, 2006
Post Venture-Investing Regret
It happens all the time in venture investing. You fight for the deal, lobbying ferociously to get into the syndicate -- or to even lead it -- and you finally get in. The partnership exchanges emails congratulating one another for a job well done, beating their way into a deal that everyone else wanted.
And then comes the first board meeting. That star CEO? A layabout as decisive as a 15-year-old girl with a walk-in closet on the first day of school. That super science officer? He has architected a product with all the reliability of a 1987 Geo Metro -- and about as much sex appeal. And the product schedule around which you invested? Late, and getting later: The first topic at the first board meeting is how much to push out the release, three quarters or five quarters. It's so predictable, to the point that seasoned venture investors almost append it to all comments about a new investment, like some sort of floating footnote: "Yeah, things seem to be going well, but we haven't had the first board meeting yet." Ooooh, everyone says.
While it wasn't a venture investment, I was reminded of this phenomenon tonight when I saw a release from ATI Technologies. Having agreed to be acquired by AMD, ATI announced today -- in zero surprise to any thinking person -- that it would miss its fourth quarter sales forecast by a whopping $140-million as Intel stopped feeding business to a newly AMD-owned supplier. That new number is 21% below pre-acquisition forecasts, making it not so much an air pocket as a hole in the sky straight to hell.
Welcome to post-investing regret.
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I couldn't agree more. This was remarkably strange and naive behavior on AMD's part, and they are now paying for it. It was as if they thought -- pace Beavis & Butthead -- that they could, heh heh, buy ATI and Intel wouldn't notice.
It has been interesting to listen to ATI, Wall Street analysts, and even industry insiders insist in the last months that Intel was cheerfully going to keep giving hundreds of millions of dollars of business to a company that was being taken over by its archenemy and nemesis.
They are now all completely stunned that Intel is behaving exactly as any six-year old would have predicted: "If you play with my enemy, then I won't play with you."
The surprise reminds me of Captain Renault's (Louis) comment when he finds a pretext to shut down Rick's Cafe in the movie Casablanca: "I'm shocked, shocked to find that gambling is going on in here!" Immediately after which, he is handed his winnings...
Whether or not the AMD takeover of ATI makes sense in the long term (I don't think so) it sure looks like AMD paid an awful lot for a company that is going to have MUCH lower revenues in the next 12 months than it did in the last 12 months.