Bono's Private Equity Fund Doing "Eh"


As bad Greek debt cripples the flow of capital across the Western world, as the U.S. stock market shudders and heaves through each new day of trading, as trade imbalances balloon and deficits skyrocket, we turn with no small apprehension to the real benchmark question: How is Bono’s equity fund doing?

That fund is the Silicon Valley shop Elevation Partners, and it’s captained by Roger McNamee, the former tech-investment guru at T. Rowe Price and the Silver Lake group. McNamee is best known for engineering such nineties high-bubble deals as the Seagate Technology turnaround, which won a sevenfold return for Silverlake; he launched Elevation in 2004 with a similar strategy built around custom reinvestment packages in high-end tech and media properties.

Bringing on the U2 frontman as an Elevation director of course galvanized a great deal of street cred in the rock-addled sanctums of Silicon Valley, where the spirit of the counterculture goes to curdle and ossify. Not, of course, that the tireless McNamee isn’t also plying his own excellent brand of rock-equity synergy; under the stage name Chubby Wombat, he fronts a hemp-themed jam ensemble called Moonalice. The band’s breakout web-viral hit, “It’s 4:20 Somewhere,” embodies the essence of this synergy by sapping whatever notional fun could still be associated with dope-smoking and giving it a rigid spot in the workday calendar-calling to mind the compulsory corporate “fun” that made the original nineties tech boom such a trial to human patience.

But there’s been one problem with the high-flying Elevation brand: It’s underperforming. As Bryan Urstadt and Ari Levy note in Bloomberg BusinessWeek, the company’s highest-profile investment-$460 million in the phone company Palm-became a near-death experience. The company’s poor performance had prompted many analysts to zero out its stock value, and it was only rescued at the eleventh hour by a $1.2 billion Hewlett Packard buyout bid, netting Elevation a five-percent gain, well shy of the heady performance promised in the fund’s name.

Urstadt and Levy are kind enough to omit mention of McNamee’s oafish 2009 forecast that, a month after the release of the Palm Pre smartphone, “not one” of the millions of iPhone adherents would hang onto their instantly obsolesced Mac gadget once they saw the market-transforming wonders the Pre performed. Palm itself was sufficiently abashed by McNamee’s ravings to go out of its way to dismiss them in a filing with the Securities and Exchange Commission. Suffice it to say, in any event, that the company would not find itself on H-P life support if McNamee’s bold prophecy came anywhere within barking distance of the truth.

The company’s 2005 buy-in with the real-estate site proved similarly, um, under-elevated, shedding nearly half its value by June 2008-which, let’s recall, was still three months ahead of the final die-off of that particular economy-distorting bubble.

Apart from its profitable investment in Facebook, there’s also the fund’s big-ticket media buy: a 40 percent stake in Forbes Media, based on McNamee’s intuition that magazines will continue to survive in the brutal media market, by virtue of being “a low-power, lightweight thing you can read on the toilet”-and that, in any event, online ad revenues would rapidly outstrip those on the old print delivery model. (Feel free, by the way, to ask Awl co-proprietors Alex, Choire and David how that prophecy is faring, but be prepared to spring for many drinks, and you also might want to bring some tissues along to cope with the inevitable crying jags.)

McNamee also let his reliably shitty taste in music steer him into dubiously synergistic acquisitions for the website. That operation picked up Clipmarks, a tagging service for random snatches of text discovered online, in 2006, after McNamee was introduced to the company’s founder by his dad, who represents the band Phish, whose smugly unlistenable oeuvre of ganja-celebrating and dog-narrated songs leave one firmly convinced that the music industry can’t die fast enough.

While Forbes, as a privately held company, doesn’t publish its earnings figures, “Elevation’s $300 million stake in the magazine and its web site is well under water,” Urstadt and Levy drily note-so much so that McNamee stepped down from the company’s board in favor of a far less visionary Elevation colleague. At the media property, meanwhile, “major cost-cutting initiatives have ensued.” (We would be remiss, by the way, not to declare our own rooting interest in the continued viability of the Forbes brand, since it functions as a virtual search engine for this column.)

We don’t mean to dwell at such length on the Elevation fund’s misfortunes-though, as long as I’m declaring interests, I should stipulate that as a recovering longtime resident of the Bay Area, I never want a hippie to have a nice day.

But it does seem that one potentially beneficial side effect of an epic market shakeout like the one we’re still enduring is that fast-talking tech prophets like McNamee get smoked out (as it were) for the pot-impaired ADD cases that most rational systems of economic reward would have pegged them as long ago. This is no consolation, of course, to the state pension funds that currently make up a third of Elevation’s $1.9 billion capital stake. Still, this would seem that extremely rare instance where an irritating musician probably should be encouraged to quit his day job-and in that spirit, I suppose one of the better long-term investment buys out there right now would be a ticket to the June 16 Moonalice-U2 show at the Oakland Coliseum.

Chris Lehmann would probably rather have no eardrums than attend that show.