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MarchFirst lops off its VC arm

Bluevector quietly ceases operations after its beleaguered backer wrote off investments in the venture capital unit in the fourth quarter.

Bluevector, the venture capital arm of beleaguered MarchFirst, is quietly ceasing operations.

MarchFirst, which launched Bluevector a year ago, owned 50 percent of the company but wrote off the remainder of its investments in the fourth quarter, according to Kelly Miller, a spokeswoman for the Chicago-based Web consultancy. Sources close to Bluevector said only a few employees remain on staff, primarily to oversee the transition of investments.

"We no longer have involvement in Bluevector," said Miller. "We are focused on our core business."

That core business hasn't been doing so well, however. The cash-strapped company, which has been weighing several financing options, is struggling to find a new leader following the abrupt departures of its chief executive officer, chief operating officer and executive vice president. Since November 2000, MarchFirst, which had been created by the merger of Whittman-Hart and USWeb/CKS, has laid off roughly 2,100 employees as it battles to reach profitability and cut costs.

MarchFirst has until April 16 to settle a loan valued at approximately $53 million with American National Bank and Trust.

Many analysts have said the company will seek a buyer for all or parts of its assets. Like other players in the once blazing market for Web development and Internet consulting services, MarchFirst has had a difficult time adjusting to the rapidly changing times.

As of midday Friday, Bluevector's Web site was inaccessible. Phone calls made to the company's offices in New York went unanswered, and calls to Michael Tunstall, who shared the top spot with former head Joe Josephson at Bluevector, were not returned.

Earlier this month, investment banking giant Lazard named Josephson managing director of its San Francisco office. Josephson was formerly a managing director at Credit Suisse First Boston--which managed the Whittman-Hart/USWeb merger--before joining Bluevector. Sources familiar with Bluevector said that most of the employees who worked there have already left or are on their way out the door.

Sheldon Laube, one of the co-founders of USWeb and now chief executive officer of Internet hosting company CenterBeam, said he was informed by principals of Bluevector that they were no longer with the company. Laube's company, which originally was funded by USWeb, got folded into Bluevector's investment portfolio once the merger became final.

"What we understand is that Bluevector doesn't exist," said Laube. "They just folded back our shares into MarchFirst, and (now those shares) will just sit there."

Laube added that he is "deeply saddened" by MarchFirst management's handling of the firm. "I don't think you can be a founder of a company and not feel wrenched apart over what's happened," he said.

Since its inception last March, Bluevector has funded companies such as Cybrant, which provides Internet-based configuration applications, and Talk2 Technology, a maker of voice recognition software. MarchFirst initially contributed $50 million to Bluevector, as well as its existing portfolio of venture capital investments, in return for a 50 percent stake. MarchFirst said at the time that, in addition to being a strategic investor in the company, it intended to be the preferred provider of professional services to Bluevector portfolio companies.