When Harry Newton opened his mail on Feb. 11, he had what experienced venture capitalists are calling “sticker shock.” In Newton’s mail was a letter from Bob Bertoldi, the managing member of New York-based Amphion Venture Partners LLC, informing him that as of Feb. 7, his $1 million investment in Amphion was worth precisely nothing, or as Newton wrote in his newsletter, Harry Newton’s Technology Investor, “$0. That’s ZERO. Niente, Nothing. Nix.” Newton was pissed. And for the next three days, Amphion’s letter was headline news in Newton’s Web newsletter.
The crux of Newton’s story is that the $70 million raised by Bertoldi for Amphion in 1995 is, from an accounting point of view, gone. Not quite, says Bertoldi. There are assets, represented by shares in Firestar, Axcess, and Biocentric Solutions, the three remaining investments of the fund. And, he insists, Amphion will continue to manage its investments in these firms until such time as the holdings in these firms are disposed of, which is unlikely in the immediate future.
Apart from the hurdles faced in realizing any returns from the three firms (Axcess, for example, was de-listed from the Nasdaq), there is an issue of debt that Amphion took on to keep its portfolio companies alive – some $15 million worth of loans, that has a preference over the return of limited partners’ investments. In short, Newton has reason for his concern that he may never see a single penny return of his original $1 million, let alone a healthy return for the use of his money over several years.
As for Amphion and Vennworks (Bertoldi’s incubator firm, which also has investments in the three companies), one is torn between praising Bertoldi for coming clean about the state of his LPs’ investments and the desire to make of Bertoldi a poster child for disastrous investing.
The truth is that Bertoldi is trying to make good on his goals for Amphion. His year-end letter to investors, announcing his decision to dissolve the fund, rather than extending its life by another two years – as allowed in the funds’ covenants – tells Amphion’s investors that only half of the management fees owed for 2001 were paid, and that no fees are to be taken for 2003, beyond out-of-pocket expenses. The letter also points out that Bertoldi has made personal investments into Amphion’s portfolio companies.
Amphion, founded in 1997 and named for a Greek god (who ironically destroyed himself after receiving a cruel blow during a battle), may in the end, be most important as one of the first venture capital firms from the boom times to publicly disappear. One typically hears of the difficulty of VC funds from the vintages of 1998 through 2000. If Amphion loses money, which Bertoldi vehemently denies will happen, it may represent the likely outcome for dozens of other funds that invested in even less substantial firms than those represented in Amphion’s portfolio.
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