- The Washington Times - Wednesday, August 8, 2001

The Washington-area venture-capital industry has reined in its international expansion as quickly as it began.

Companies that were aggressively opening new offices and making acquisitions a year ago, especially in Europe, are now spending most of their time trying to ensure that their U.S.-based invest-

ments stay afloat.

Some venture-capital firms, such as Arlington-based Friedman, Billings, Ramsey Group, are investing slowly overseas. Others, like Yazam, an international outfit that had offices in Reston, no longer exist.

"I'm not sure [the Americans] have been as successful overseas as they had hoped," said Jesse Reyes, vice president with Newark, N.J.-based Venture Economics, a research firm. "They were ramping up just as the market slowed."

In all of 2000, when venture-financed deals began to slowdown, funds in the Mid-Atlantic region put $243 million into companies overseas. For the first six months of 2001, that number was $15 million.

Emanuel Friedman, chairman of Arlington-based FBR said the "quasi-depression" in the technology industry worldwide, with the exception of the biotechnology sector, has put the brakes on venture capital.

Still, it is also "an unbelievable opportunity for people with money," Mr. Friedman said.

Edward Mathias, a managing director at the District-based Carlyle Group, said the terrain overseas, while appealing during the technology boom that lasted through the middle of last year, has proved much harder.

Europe has the most developed venture-capital industry after the United States. Still, there are far fewer start-up companies. And these days, entrepreneurs have more venture capitalists to choose from.

"Without exception, [Americans] are finding Europe more difficult than they had ever imagined," Mr. Mathias said.

Even business at Carlyle, which has a heavy-hitting roster of former senior government officials on its payroll, has slowed down. Its 2-year-old European venture fund is only 25 percent invested, a very low rate by historical standards.

The firm even tweaked the name of its European operation, Carlyle Internet Partners Europe, to drop the word "Internet" now that the dot-com boom is over. Mr. Mathias called it a "cosmetic change."

At the other end of the scale, Yazam went from being a multinational incubator and venture-capital firm to a cheap acquisition target for District-based U.S. Technologies, a venture firm.

New York-based Yazam took the area by storm last year, promising companies a combination of money and advice about international business through its offices in London, Tokyo and Jerusalem. It had credibility in the form of financial backing from Carlyle, Japan's Itochu International, and a variety of Wall Street icons, among them Merrill Lynch.

It also shelled out $50 million for First Tuesday, the networking firm that paired eager entrepreneurs with venture capitalists at high-profile parties.

Early this year, it all came to a fast halt. After briefly considering liquidation, Yazam sold its Tokyo and London operations, and unloaded First Tuesday for a reported $1 million.

"The venture capitalists have to focus on the companies they believe in right now," said Philip Garfinkle, Yazam's president through the end of 2000. "They're not spreading their wings anymore."

Mr. Garfinkle left Yazam to become a consultant to U.S. Technologies. In late March, that company bought Yazam for $22 million in cash.

FBR jumped into the British venture-capital market last year through a partnership with Dawnay Day Lander, which manages the fund. It remains determined to hang tough, but has made only two investments this year, compared with seven for a similar period last year.

One company that FBR and Dawnay funded, an online betting system, is "in hibernation" until the technology market recovers, said Julian Ha, the firm's executive vice president.

"You know how the cliche goes," Mr. Ha said. "When America sneezes, Europe catches a cold."

FBR has also taken a go-slow approach to its joint venture in Israel, which it set up with two Israeli companies a year ago.

"We just made our first investment decision two weeks ago," Mr. Friedman said.

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