Integral Capital Partners Invests in SCO

28 August 2003

SEC Filing

Earlier today, a Schedule 13G appeared on the SEC site indicating that on 22 August 2003, Integral Capital Partners owned more than 5% of SCO stock. This generated a flurry of messages on the Yahoo SCOX message board, and I am attempting to distill it here in a centralized location for the benefit of those following this story.

The 13G makes for not so interesting reading. My favorite part is where the various Integral Capital Partners' entities are described:

This statement is being filed by Integral Capital Management V, LLC, a Delaware limited liability company ("ICM5"), ICP Management V, LLC, a Delaware limited liability company ("ICP Management 5") and Integral Capital Management VI, LLC, a Delaware limited liability company ("ICM6"). The principal business address of ICM5, ICP Management 5 and ICM6 is 3000 Sand Hill Road, Building 3, Suite 240, Menlo Park, California 94025.

ICM5 is the general partner of Integral Capital Partners V, L.P., a Delaware limited partnership ("ICP5"). ICP Management 5 is the general partner of Integral Capital Partners V Side Fund, L.P. ("Side Fund") and the Manager of Integral Capital Partners V SLP Side Fund, LLC ("SLP Side Fund"). ICM6 is the general partner of Integral Capital Partners VI, L.P., a Delaware limited partnership ("ICP6"). With respect to ICM5, ICP Management 5 and ICM6, this statement relates only to ICM5's, ICP Management 5's and ICM6's indirect, beneficial ownership of shares of Common Stock of the Issuer (the "Shares"). The Shares have been purchased by ICP5, Side Fund, SLP Side Fund and ICP6, and none of ICM5, ICP Management 5 or ICM6 directly or otherwise hold any Shares. Management of the business affairs of ICM5, ICP Management 5 and ICM6, including decisions respecting disposition and/or voting of the Shares, resides in a majority of the managers of ICM5, ICP Management 5 and ICM6, respectively, such that no single manager of ICM5, ICP Management 5, or ICM6 has voting and/or dispositive power of the Shares.

I'm the kind of guy who likes reading my insurance riders, but trying to parse that sentence still makes my head spin. Ok, so now ICP has 680,000 shares distributed thusly:

A. Integral Capital Management V, LLC ("ICM5") 324,550
B. ICP Management V, LLC ("ICP Management 5") 5,450
C. Integral Capital Management VI, LLC ("ICM6") 350,000
D. Integral Capital Partners V, L.P. ("ICP5") 324,550
E. Integral Capital Partners V Side Fund, L.P. ("Side Fund") 4,400
F. Integral Capital Partners V SLP Side Fund, LLC ("SLP Side Fund") 1,050
G. Integral Capital Partners VI, L.P. ("ICP6") 350,000

Was the Filing Really Necessary? - Diluted Shares

Now, I know the above adds up to 1.36 million shares, but actually items A-C above are repated in items D-G, so we are only talking about 680,000 shares. At the end of June, according to MSN, IPC had 521,410 shares. So, if 22 August brought them up to 680,000, perhaps they purchased 170,000 shares then, or perhaps they had been slowly buying all along. Yahoo reports that on 22 August, SCO traded between 12.21 and 13.75 with a volume of 526,400 shares.

Interestingly, 680,000 shares would only be 5% if there were at most 13.6 million shares outstanding. That would be the number to use if you were going by the shares outstanding listed in either their 10-Q filed on 13 June 2003 or an S-3 filed on 08 July 2003. What's odd about all this is if you look at SCO's press release on the third quarter results, the numbers imply that there are now over 16 million shares floating around. Since I would assume that SCO saw this filing from ICP dated 22 August, I wonder why they didn't tell ICP that it was unnecessary?

In SCO's third quarter press release, they report "net income of $3.1 million, or $0.19 per diluted share." If you do the math on that, it comes out to about 16.3 million shares. There is no way to make a rounding error and get $3.1 million dollars to come out to $.019/share if you only have 13.6 million shares. So, either SCO has made a big mistake on their math, or they have enough shares that ICP's filing wasn't necessary.

Who is Integral Capital Partners?

Integral Capital Partners is a family of investment funds concentrating in technology companies. If you look at the bios of their executives, it appears that most of them left T. Rowe Price to found in 1991 or later join ICP.

ICP has a number of holdings in well-known (and not so well-known) technology companies, including LinuxCare and Transmeta. More on one of their holdings later.

ICP lists two other fund firms that they work closely with. According to ICP, they were started in part by Kleiner Perkins Caulfield and Byers and later started Silver Lake Partners.

Pamela Hagenah is the person who signed the 13g SEC filing. Her bio at ICP mentions that she spent "nine years as an attorney with Brobeck Phleger & Harrison, the last three years as a partner in the Business & Technology Group. Pam's practice focused on the representation of investment partnerships, including venture capital funds, in connection with their formation and fundraising as well as in their investment activities in private companies. In addition, she represented private and public emerging growth companies in various transactions including private financings, public offerings, and acquisitions." So, I would bet that she is even more experienced than SCO at byzanntine stock deals.

A Gartner Connection

The more interesting exec at ICP is Roger B. MacNamee, who is listed as co-founder of ICP and a founder of Silver Lake Partners. His Silver Lake bio has this to say:

Roger McNamee is a founder of Silver Lake Partners and Integral Capital Partners. Roger has been investing in technology companies since 1982, when he joined T. Rowe Price Associates as an analyst. At T. Rowe Price, Roger managed the top-ranked Science & Technology Fund and co-managed the New Horizons Fund. While at T. Rowe Price, Roger led venture investments in market leaders such as Electronic Arts and Sybase. In 1991, he co-founded Integral with John Powell, the venture capital firm of Kleiner Perkins Caufield & Byers, and Morgan Stanley & Co. Integral pioneered the crossover category, which combines public market investing with late stage venture capital. At Integral, Roger led venture investments in Intuit, Flextronics, Documentum, Informatica, Cerent (now part of Cisco), Extreme Networks, and Sycamore Networks, among many others. At Silver Lake, Roger served on the board of directors of Gartner.

So, ICP and Silver Lake each list Gartner as a company they invest in. In fact, McNamee has been on their Board of Directors. Another big institutional investor in Gartner is Royce and Associates, a name which may sound familiar to those reading the Yahoo SCOX message board. See my Royce writeup inspired by discussions from this thread. BTW, Royce and Associates also owns a good chunk of SCO

See all the long boring stock discussions.

Everything on this site Copyright (c) 2003 by Tim Rushing. This material may be distributed only subject to the terms and conditions set forth in the Open Publication License, v1.0 or later (the latest version is presently available at Distribution of substantively modified versions of this document is prohibited without the explicit permission of the copyright holder


I can be contacted at