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Show “The Salt Lake Tribune UTAH/NATION Sunday, December3, 2000 Noorda’s FortuneBacks Up High-Tech Investments BY LISA CARRICABURU. accomaliahed is unique in Utah and quite ‘THE SALT LAKE TRIBUNE remarkable,” said Todd Stevens, managing director ofWasatch Venture Fund. LINDON — Novell Inc.’s misfortunes of late often are cited as a reason Utah’s hightech industry fails to attract the national attentionit once did. But the man credited with building the Provo-based networking companyinto one of the nation’s most productive and profitable software makers in the 1980s and early 1990s remains one of Utah’s most prodigious creators of wealth — andhigh-paying, high-tech jobs. Thefortuneretired Novell chairman and chief executive Ray Noorda amassed before Trent Nelson/The Salt Lake Tribune Richard Lawsonis the CEO of FoundInc. His San Francisco firm has opened a Salt Lakeoffice with 100 employees. High-Tech: Lookingfor a Second Wave industry.” Heand other backersofthe Silicon Valley Alliance say successful IPOsare rare in Utah because the state’s capital structure is immature. Moneyflowsin thestate, but too often the financing that companies receive comes without the man- City’s Wasatch Venture Fund. ranted, 2000 has not been a offerings anywhere in the nation. But even last year, when market tors. In October alone, two rising py’s president and CEO. The company’s accomplishments contradict assertions by the state’s economic developers that Utah’s high-tech industry needs more money and managementsupport from outsidethestate to thrive. “What the Canopy Group has pursued prematurely to satisfy the financial goals ot outside investors. “We don’t have to worry about exits. We add value and see what comes,” he said. “I believe good exits come to good tech- In the ensuing years, they invested heavily in companies with technology that competes with Microsoft Corp. products. A number of Canopy Group companies,for example, focus on the Linux operating system, an alternative to Microsoft’s pervasive Windowsoperating system. “We focused on thealternative, not out of any deep-rooted hatred for Microsoft, but be- nologies.” Hecan provide examples. cause there’s already plenty of money out there for Microsoft,” Yarro said. Ina sense, Canopy acted —and continues to act — in isolation. The company is not a true venture-capital firm because it raises no outside money.It relies solely on Noorda’s moneyand,increasingly, the profits from its portfolio companies. “The reason it works is because of Ray,” Yarro said. “While we live and die by the Canopy last year “sold Vinca Corp. to Legato SystemsInc.in a stock and cash deal worth $94 million. This yearit sold KeyLabs Inc. to Exodus Communications Inc. in a stock deal valued at $43.5 million. It took Caldera Systems Inc. public this year, andhasfiled to do the samewith Lineo Inc. Lineo, formerly Caldera Inc., late last yearsettled a high-profile antitrust lawsuit againstMicrosoft for $250 million. Noorda acknowledged he has made as much money with Canopy Groupas hedid at Novell’s helm. “Certainly, I’m pleased,” he said in an Octoberinterviewafter the Canopy Group dedicated a new headquarters building. “I never expected the kind of success we've enjoyed with this venture.” Ina sense, the sameenti kept it from adapting to a new- leadingto a strengthened industry economy world where outside help overall, Nelson said. is key. The new economy undoubtedly places more emphasis on net- The initiative already is having limited success. FoundInc. of San Francisco, for example, has opened a_ 15,000- working,information sharing and coalition building, economic developerssay. “There’s a certain naivete here square-foot research and development office in Salt Lake City that that we haveto do everything for ourselves,” said Ed Ekstrom, an of Website development tools, and PhobosInc., a Salt Lake City-based Intel Corp. vice president in Utah. “It makes no sense in today’s developerof tools that speed Inter- world. Why shouldn’t we rub net traffic, last month agreed to be acquired by Silicon Valley compa- shoulders with those whoalready In addition, Leavitt said 10 Sili- employsnearly 100 people, mainly engineers and software developers, said Richard Lawson,thesoftware developer’s president and nies for $57 million and $269 mil- have cracked the code?” Ultimately, the Silicon Valley con Valley compiiies have applied. for grants from the Utah Industrial lion, respectively. Alliance seeks a more sophisti- Assistance Fund (IAF), a possible While such moves certainly benefit those involved, they thwart cated capital structure for the first step toward expanding in Utah. Theinitiative’s backers are encouraged enough by what they state, both by expanding the company and by spawning newstartups to support its operations. “You can’t fault companies for going other routes, but for overall offerings or other exit strategies sometimes Utah an early high-tech leader has ter.com, an Orem-based provider successful IPO and grows in the because “we're not abouttheexit.” Companies in its portfolio are not rushed to create wealth through initial public stock neurial indepéndence that made stars seemingly headed for IPOs. chose that route. MyCompu- the creation of true prosperity that comes when a company. stages a Yarro maintains the Canopy Group’srelative isolation is responsible for its success holdings to 16. value has doubled, said Ralph Yarro, Cano- agement acumenavailable to venture capital-backed companies in places such as Silicon Valley. conditions were much more favorable, Utah saw only a single IPO. Economic developers say Utah start-ups too often go public by merging with shell corporations, a maneuverthat seldom creates any long-term wealth. Alternatively, they agree to be acquired by out-of-state competi-> The Canopy Group,an umbrella company he formed that has helped create and finance nearly 60 companies, 80 percent of which are in Utah. Combined, they employ more than, 2,000; big players Caldera Systems Inc. and Lineo Inc. have more than 200 workers apiece. Canopy’s holdings are estimated at about $2 billion and growing. This year alone, their chief executive. “If we could get more than a handful of IPOs to flourish here,it would increase the visibility and health of our « @ Continued from A-1 year of screaming initial public leaving the company in April 1994 now feeds The Canopy Group owes more to Novell than just the wealth of its benefactor. Many who now play active roles in the company also trace their roots to Novell. In 1996, Noorda hired Yarro, then a member of Novell's advanced technology team, to manage diverse portfolio of about 40 companies in which the Noorda Family Trust had invested. The pair decided to focus the portfolio on high-tech companies, paring the number of money we have within Canopy, we have the best funding source we could hope for in him. He's pure risk and doesn’t role a dime out of the organization.” state. It is concentrating on venture capitalists, lobbying them to consider Utah when California companiesthey fund are looking to expand. Onceventurecapitalists are fa- miliar with Utah, they will return, lending their money, management expertise and support to more wealth weneed to have those com- companies in the state. Their ex- panies[successful IPOs],” said Richard Nelson, UITA president and perienceat taking companies public will be repeated in thestate, with Neck or Dim rteie iNig Leavitt added he will ask lawmakers to increase allocations to the IAF, which offers incentive grants to businesses that agree to meet certain economic developmentgoals, such as creating jobs that pay wagesabovethe averages in the counties where they locate. “We're nottalking about a lot of money here,” he said. “I will be looking for something from the Legislature to operate in a focused way but.it is not something that will detract from other programs.” attention. 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