PATIENCE PAYS

In late April, while partners at Battery Ventures and Accel Partners were celebrating a $1.15 billion (€849 million) IPO that was 13 years in the making, partners at other firms were no doubt kicking themselves for having abandoned the deal.

Dallas, Texas-based MetroPCS was founded in 1994 with roughly $2.25 million in seed money from the two venture firms. Originally called General Wireless, the mobile phone service provider soon raised nearly $100 million and successfully bid on a $1 billion block of Federal Communications licenses granting it access to markets in Southeast Florida, Atlanta and San Francisco.

But by 1997, recalls Battery co-founder Rick Frisbie, “the markets had turned very negative toward wireless carriers. We had paid this huge price for the spectrum and suddenly people didn't think it was worth it and weren't willing to finance it.”

In bankruptcy court, MetroPCS claimed fraudulent conveyance against the government, arguing that by the time the government finally transferred the spectrum licenses, they were no longer worth the $1 billion price tag. MetroPCS won its case, which then went on to district court, circuit court and the Supreme Court, each of which upheld the ruling.

“By '99 we were through the circuit court and everyone was quite convinced we were going to win, so the company was able to raise financing again in late '99,” Fribie says. Notably, Columbia Capital and M/C Venture Partners committed $350 million, which was drawn down in a three-year period.

But the company hit a bump once again in 2004, as an IPO was called off due to the discovery of earnings misstatements.

Bear Stearns, one of the IPO's underwriters, helped structure a secondary financing deal in late 2005 with private equity firms TA Associates and Madison Dearborn Capital Partners. All stockholders were given the chance to sell and roughly one-third – or $700 million-worth – did.

“Some of the investors had been in it for 10 years at that point and they'd had enough,” recalls Arthur Patterson, a partner at Accel. “The thing about the market is, different people have different risk tolerances and holding periods.”

In its decade-plus of fundraising, MetroPCS attracted numerous private investors including Silver Creek Ventures, Wells Fargo, New York Life Insurance, Key Principal Partners, HarbourVest Venture Partners, Technology Venture Associates, First Plaza Group Trust and Whitney & Co and the Pension Reserves Investment Management Board.

Both Battery and Accel saw the value in sticking with the company, which has a strategy of providing flatrate mobile phone service without contract requirements. Accel, which plans to distribute MetroPCS stock to its investors at “the right time”, typically sticks with a company until it goes public, Patterson says.

Battery's Frisbie says: “Even though [the investment] was in a very old fund, and one could argue that we should have liquidated, we felt that the upside was still very substantial so we wanted to hang in. Selling early at a profit is never really a bad thing to do, but on the other hand, when you look back and see you could've made another 3.5x your money, it probably does hurt some.”

He estimates that Battery's original $7.5 million investment is now worth about $300 million, while a $20 million investment made in 2005 is worth $65 million or $70 million.

“We're feeling very good about it now,” Frisbie says.