Cityreach: a reach too far

Cityreach, the pan-European provider of Internet infrastructure and managed services, otherwise known as Internet hotels, has been placed in the hands of administrative receivers KPMG. Venture capital losses will be huge unless, and perhaps even if, KPMG can recoup some of the losses by selling CityReach’s assets.

CityReach raised four rounds of venture capital backing. Its seed round was raised in August 1999 from Battery Ventures and M/C Venture Partners.

The first round, in March 2000, was for $21 million and the second, for $25 million, followed shortly after in May 2000. The investors in the March and May rounds include Battery Ventures, Chase Capital Partners, Merrill Lynch Venture Partners and Vulcan Ventures. Merrill Lynch (agent) and Chase Manhattan also agreed a $133 million senior credit facility for CityReach in July 2000.

By October last year CityReach was back out in the market, this time it successfully raised $155 million, led by Investcorp. Other participants in this round included previous investors Morgan Grenfell Private Equity, Merrill Lynch and Vulcan Ventures.

More funds were needed by April this year and Investcorp, Battery Ventures, M/C Venture Partners and JP Morgan – all previous investors in CityReach – dug into their pockets to find a further e40 million.

KPMG, after debts, is looking at assessing the value of CityReach’s

seven open facilities and a further one scheduled to open shortly. They can be found in Amsterdam, Berlin, Brussels, Budgapest, Dublin, Hamburg, London, Munich, Paris and Stockholm.

CityReach had planned to IPO towards the end of this year.