“Roger and John were almost polar opposites,” Fred Anderson says. “They really respect each other, but they saw things very differently. That was probably the biggest challenge in the chemistry. All the rest of us jelled.”
Riccitiello’s exit also set the stage for Elevation’s first investment liquidation, a profitable transaction that nevertheless raised some eyebrows. In October, McNamee and his partners revealed that the firm was selling its controlling stake in the videogame developer BioWare/Pandemic to E.A. The sale would double the value of Elevation’s $300 million investment in less than two years—a respectable, if not blockbuster, return—and was generally viewed as a smart move, since the company needed a cash infusion and, as one investor put it, “the deal went sideways and lost its champion” when Riccitiello quit.
But the news fueled a simmering question: Was Elevation suffering from “strategy drift”? According to a memo circulated to potential investors when the firm was first founded, entertainment assets would be a primary focus. Yet for all Bono’s talk about “artists sitting at the table,” the Bioware/Pandemic sale spelled the end of the only high-profile entertainment play Elevation had made.
Moreover, some Elevation investors were displeased to learn that the sale would mean a windfall of as much as $4.9 million for Riccitiello, who held an indirect interest in Bioware/Pandemic’s parent company, VG Holding, through his continued ties to Elevation.
“He doesn’t deserve to take anything with him when he walked out like that,” says one Elevation investor, who asked not to be named because his employer forbids it. “I take a very dim view of people who ask us to sign up for 10 years and then feel free to jump ship. Someone who chose to do that should leave all their economics behind.”
But this same investor also says he’s happy with Elevation’s progress. While the most recent performance figures, made public by a state pension fund, show Elevation’s holdings to be worth less than the capital invested so far, with a negative 8.3 percent internal rate of return, that’s largely due to two things: the fee structure of private equity (general partners take their fees annually, before any returns on investments are realized) and timing (the figure predates the Bioware/Pandemic sale). Once the Bioware sale is accounted for, the fund’s return to date should jump. But even then it will be years before Elevation’s performance can be accurately measured.
At a media conference in New York in October, McNamee said that he had no idea where the online-media world was headed—a surprising admission for someone whose firm had recently made a quarter-billion-dollar wager on a content company with big digital dreams.
At Forbes Media, which the Forbes family still controls, about two-thirds of Elevation’s investment is aimed at improving Forbes.com. Though McNamee says he believes the print world will never go extinct (“Magazines are a low-power, lightweight thing you can read on the toilet,” he likes to say), he thinks business journalism is particularly well suited to the Web because consumers hunger for information that can help them take control of their financial lives.
That perceived hunger has prompted McNamee to push Forbes to make acquisitions to beef up the personal-finance functions of Forbes.com, which has been criticized for goosing traffic with lists of the world’s most expensive homes and best topless beaches. One such acquisition was Investopedia, the leading online portal for investment-related research, which Forbes bought in April 2007. Another was Clipmarks, a small company that lets users tag, store, organize, and share snippets of webpages, acquired in November 2007. (McNamee’s musical passions aided in the brokering of that deal—he’d met Clipmarks’ founder through the young man’s father, a lawyer who represents the rock band Phish.)
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