Lycos, Paul Allen, others team on Net investing

The giant search service reportedly is starting a $70 million Internet-investing venture that includes Microsoft cofounder Paul Allen.

Hoping to profit from market investments in Internet start-ups that may also provide strategic benefits to its Web network, Lycos today said it was forming a $70 million venture capital fund in collaboration with a group of partners, including Microsoft cofounder Paul Allen's Vulcan Ventures.

The fund hopes to leverage traffic to Lycos's network to kick-start early-stage Internet companies through technology, content, and commerce agreements.

Lycos will pump $10 million into the fund, with the remaining $60 million coming from other partners, including Bear Stearns, Mellon Ventures, Mirae, Sumitomo, and others.

Lycos Ventures will seek to make early-stage investments in companies that are involved with e-commerce, online media, or in the development or use of Internet technology, content, or services.

With its close ties to Lycos, the fund is positioned to target and invest in promising emerging companies, the company said. The start-ups also have an opportunity for accelerated growth given their ties to each other in the portfolio.

Lycos Ventures mirrors CMGI's successful venture model, which has a wide portfolio of Internet and technology companies that work together in some capacity to improve their services and product offering. CMGI is one of the largest shareholders in Lycos and recently purchased AltaVista from Compaq Computer.

The fund plans to build upon Lycos's existing investment strategy, which currently includes ownership and warrants in 11 Internet firms, including:

• Mail.com, an Internet-based email service

• Fairmarket, an online auction infrastructure technology company

• NeoPlanet, a customizable desktop portal

• Wit Capital Group, an online investment banking firm

Lycos said its strategic investments in these early-stage Internet companies have yielded significant return to date. Its investment in Amazon's PlanetAll in April 1998 yielded a more than 300 percent return for the company in just seven months.

"The fund gives us the leverage to increase our investment position in a balanced, risk-managed fashion with select partners," said Lycos chief executive Bob Davis in a statement. "This is the classic win-win. Younger businesses get funding and...the investment risk and reward is shared by Lycos and our partners."

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