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SEPTEMBER 17, 2001
FINANCE
Back to Main Story
Big Returns at Matrix
FUND YEAR SIZE RETURN*
MILLIONS
PARTNERS III 1990 $80 773%
PARTNERS IV 1995 125 1,997
PARTNERS V 1998 200 1,563
PARTNERS VI 2000 319 N/A
* Actual proceeds to investors from liquidated investments (stock distributions or cash from sales), as a percentage of
committed capital, as of Dec. 31, 2000
Data: InsiderVC.com
1 of 3 2/6/2008 7:54 PM
BW Online | September 17, 2001 | Table: Big Returns at Matrix
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BW Online | September 17, 2001 | Matrix Bets on Wireless
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SEPTEMBER 17, 2001
FINANCE
Matrix Bets on Wireless
In a weak economy, Managing Partner Paul Ferri's winning streak is on
the line
Since the great tech wreck of 2000, life for most venture
capitalists has been rough. They're making fewer
STORY TOOLS
investments, marking down the value of those they have,
Printer-Friendly Version
and facing headaches raising new cash. Not Paul J. Ferri,
however. In the past 12 months, the managing partner of
E-Mail This Story
Matrix Partners of Waltham, Mass., has invested $101
million in 13 companies, mostly wireless communications
startups. And in May, he raised $1 billion for his latest
fund--more than double what he raised in the 1990s.
Table: Big Returns at Matrix
Matrix is a magnet for new money because it was one of
the nation's most profitable VC firms through the 1990s,
FINANCE
says Steven Lisson, who tracks venture funds at his Web
Hedge-Fund Follies
site, InsiderVC.com. The best performer among Ferri's
three funds returned 20 times its investors' money from its Matrix Bets on Wireless
formation through Dec. 31, 2000, and his worst seven times
the original investment (table). Matrix sold many of its big winners near the top of the
market. For example, it paid 20 cents a share for optical networking company Sycamore
Networks Inc. in 1998 and sold last year at $107 a share, for a 53,400% gain. Just six
companies out of 60 that Matrix backed--including the only two dot-coms--were losers.
"What's unique about Matrix is that most top firms do have an occasional weak fund,"
Lisson says, "but Matrix does not."
GROUND RULES. The Italian-born Ferri sidestepped the tech meltdown by following
strong, even rigid, investing rules that he has developed over a 30-year career as a
venture capitalist. For starters, he steers clear of fanciful theories--such as the idea that
Webvan Group Inc., which filed for bankruptcy in July, would create a whole new
business model for grocery distribution. Instead, Ferri focuses on technology equipment
companies headed by top engineers able to build products that can produce revenues
within two years. Most are referred by successful entrepreneurs that Matrix already has
funded. Plus, Ferri insists that Matrix must always be the first-round--and lead--investor in
a company because it gives him more influence on strategy. Another rule: One of its 11
partners, many of them experienced engineers and executives, must be on the board.
Now, despite the extensive overcapacity that's wreaking havoc on telecom startups and
giants alike, Ferri is betting big on wireless technology. He doesn't consider the strategy
to be all that risky, as the wireless business is still growing fast--at a nearly 30% clip,
according to Merrill Lynch & Co. "All our startups are selling into markets where there is
still demand for new products," Ferri says.
All the same, Matrix's new investments are focused on one of the most volatile sectors of
the tech industry. But Ferri says he's much happier now than where he was in then
1980s. Back then, he diversified into tech, retail, and health care. The results were not
spectacular, and the experience left him focused almost exclusively on tech equipment
and software companies.
Winphoria Networks Inc. is typical of the companies currently being funded by Matrix.
The Tewksbury (Mass.) startup was co-founded by Shamim Naqvi, a former top Lucent
Technologies Inc. engineer. Next year, Naqvi says, Winphoria plans to release new
wireless switching equipment at half the price but four to five times the capacity of today's
switches--making it potentially a high-priority purchase by battered wireless carriers.
"We're not a sexy company, but it won't be hard for our customers to justify the cost of
buying our product," says Naqvi.
Ferri admits that near-term the weak economy could prevent many customers from
buying the products Winphoria and others are developing. So he is prepared to wait
SEPTEMBER
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2/6/2008 7:54 PM
BW Online | September 17, 2001 | Matrix Bets on Wireless http://www.businessweek.com/magazine/content/01_38/b3749094.htm
three or four years--instead of one or two--to earn a return on his investments. And he is
planning to invest more money in his companies--double or triple the $8 million to $10
million investments that he typically made over the past 10 years. "We know we'll never
have the returns we had in the past," says Ferri.
No doubt Ferri's winning streak will be sorely tested in the next few years. Not only is the
tech industry struggling, he has also got far more to invest than ever before. But Ferri's
disciplined approach may see him through.
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN
Home Page
Architecture
Brand Equity
Auto Design
Game Room
SMALLBIZ
Smart Answers
Success Stories
Today's Tip
INVESTING
Investing: Europe
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BW 50
S&P Picks & Pans
Stock Screeners
Free S&P Stock Report
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Mutual Funds
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MBA Rankings
Who's Hiring Grads
By Geoffrey Smith in Boston
Get BusinessWeek directly on your desktop with our RSS feeds.
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To subscribe online to BusinessWeek magazine, please click here.
Learn more, go to the BusinessWeekOnline home page
BW EXTRAS
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Media Kit | Special Sections | MarketPlace | Knowledge Centers
3 of 3 2/6/2008 7:54 PM
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U.S. EDITION
Full Table of Contents
Cover Story
Up Front
Readers Report
Corrections &
Clarifications
Technology & You
Books
Economic Viewpoint
Economic Trends
Industry Insider
Business Outlook
News: Analysis &
Commentary
In Business This Week
Washington Outlook
International Business
International Outlook
Government
Management
Special Report
The Corporation
Finance
Science & Technology
Developments to Watch
Information Technology
BusinessWeek Investor
The Barker Portfolio
Inside Wall Street
Figures of the Week
Editorials
INTERNATIONAL
EDITIONS
International --Readers
Report
International --Asian
Business
International --European
Business
International --Finance
International --Int'l
Figures of the Week
International --Editorials
PREMIUM CONTENT
MBA Insider
BW MAGAZINE
Get Four Free Issues
Register
Subscribe
Customer Service
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
SEPTEMBER 17, 2001
FINANCE
Matrix Bets on Wireless
In a weak economy, Managing Partner Paul Ferri's winning streak is on
the line
Since the great tech wreck of 2000, life for most venture
capitalists has been rough. They're making fewer
STORY TOOLS
investments, marking down the value of those they have,
Printer-Friendly Version
and facing headaches raising new cash. Not Paul J. Ferri,
however. In the past 12 months, the managing partner of
E-Mail This Story
Matrix Partners of Waltham, Mass., has invested $101
million in 13 companies, mostly wireless communications
startups. And in May, he raised $1 billion for his latest
fund--more than double what he raised in the 1990s.
Table: Big Returns at Matrix
Matrix is a magnet for new money because it was one of
the nation's most profitable VC firms through the 1990s,
FINANCE
says Steven Lisson, who tracks venture funds at his Web
Hedge-Fund Follies
site, InsiderVC.com. The best performer among Ferri's
three funds returned 20 times its investors' money from its Matrix Bets on Wireless
formation through Dec. 31, 2000, and his worst seven times
the original investment (table). Matrix sold many of its big winners near the top of the
market. For example, it paid 20 cents a share for optical networking company Sycamore
Networks Inc. in 1998 and sold last year at $107 a share, for a 53,400% gain. Just six
companies out of 60 that Matrix backed--including the only two dot-coms--were losers.
"What's unique about Matrix is that most top firms do have an occasional weak fund,"
Lisson says, "but Matrix does not."
GROUND RULES. The Italian-born Ferri sidestepped the tech meltdown by following
strong, even rigid, investing rules that he has developed over a 30-year career as a
venture capitalist. For starters, he steers clear of fanciful theories--such as the idea that
Webvan Group Inc., which filed for bankruptcy in July, would create a whole new
business model for grocery distribution. Instead, Ferri focuses on technology equipment
companies headed by top engineers able to build products that can produce revenues
within two years. Most are referred by successful entrepreneurs that Matrix already has
funded. Plus, Ferri insists that Matrix must always be the first-round--and lead--investor in
a company because it gives him more influence on strategy. Another rule: One of its 11
partners, many of them experienced engineers and executives, must be on the board.
Now, despite the extensive overcapacity that's wreaking havoc on telecom startups and
giants alike, Ferri is betting big on wireless technology. He doesn't consider the strategy
to be all that risky, as the wireless business is still growing fast--at a nearly 30% clip,
according to Merrill Lynch & Co. "All our startups are selling into markets where there is
still demand for new products," Ferri says.
All the same, Matrix's new investments are focused on one of the most volatile sectors of
the tech industry. But Ferri says he's much happier now than where he was in then
1980s. Back then, he diversified into tech, retail, and health care. The results were not
spectacular, and the experience left him focused almost exclusively on tech equipment
and software companies.
Winphoria Networks Inc. is typical of the companies currently being funded by Matrix.
The Tewksbury (Mass.) startup was co-founded by Shamim Naqvi, a former top Lucent
Technologies Inc. engineer. Next year, Naqvi says, Winphoria plans to release new
wireless switching equipment at half the price but four to five times the capacity of today's
switches--making it potentially a high-priority purchase by battered wireless carriers.
"We're not a sexy company, but it won't be hard for our customers to justify the cost of
buying our product," says Naqvi.
Ferri admits that near-term the weak economy could prevent many customers from
buying the products Winphoria and others are developing. So he is prepared to wait
SEPTEMBER
TODAY'S MOST
POPULAR STORIES
1.
Is John McCain
Good for Business?
2.
S&P's Buffett Stock
Screen
3.
Novell: Ready to Buy
4.
Exchange Mergers
Hit Roadblocks
5.
A Really Good
Collapsible Bike
Get Free RSS Feed >>
MARKET INFO
DJIA 12200.1 -65.03
S&P 500 1326.45 -10.19
Nasdaq 2278.75 -30.82
Portfolio Service Update
Stock Lookup
Enter name or ticker
1 of 3
2/6/2008 7:54 PM
BW Online | September 17, 2001 | Matrix Bets on Wireless http://www.businessweek.com/magazine/content/01_38/b3749094.htm
three or four years--instead of one or two--to earn a return on his investments. And he is
planning to invest more money in his companies--double or triple the $8 million to $10
million investments that he typically made over the past 10 years. "We know we'll never
have the returns we had in the past," says Ferri.
No doubt Ferri's winning streak will be sorely tested in the next few years. Not only is the
tech industry struggling, he has also got far more to invest than ever before. But Ferri's
disciplined approach may see him through.
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN
Home Page
Architecture
Brand Equity
Auto Design
Game Room
SMALLBIZ
Smart Answers
Success Stories
Today's Tip
INVESTING
Investing: Europe
Annual Reports
BW 50
S&P Picks & Pans
Stock Screeners
Free S&P Stock Report
SCOREBOARDS
Hot Growth 100
Mutual Funds
Info Tech 100
S&P 500
B-SCHOOLS
Undergrad Programs
MBA Blogs
MBA Profiles
MBA Rankings
Who's Hiring Grads
By Geoffrey Smith in Boston
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or
video.
To subscribe online to BusinessWeek magazine, please click here.
Learn more, go to the BusinessWeekOnline home page
BW EXTRAS
2 of 3 2/6/2008 7:54 PM
BW Online | September 17, 2001 | Matrix Bets on Wireless
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BW Mobile
BW Online Alerts
Dashboard Widgets
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Terms of Use | Privacy Policy
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Media Kit | Special Sections | MarketPlace | Knowledge Centers
3 of 3 2/6/2008 7:54 PM
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