PSINet Founder Runs Out of Luck - Company Operations

After a decade of high-stakes gambling, William Schrader, CEO, chairman and founder of PSINet, finally rolled snake eyes last week.

The man many call the father of the commercial Internet was ousted from the pioneering Internet services provider in favor of Harry Hobbs, the company's former president and COO, as the company attempts a last-ditch effort to survive through restructuring.

The firing brings to a close one of the oft-told tales of the new economy, of how a visionary builds a business from scratch, only to risk too much and take the company down with him in a cataclysmic crashing and burning.

Schrader founded Ashburn, Va.-based PSINet in 1989, initially funding it through credit cards and the sale of the family car. "Bill was there in the beginning, and no one else had the guts or the vision to do what he did," says Wade Woodson, managing director of Sigma Partners, one of the first venture capitalists to sign on in the early 1990s. The company went public in 1995 and had a legendary run, with its stock reaching a high of $59.81 in March 2000.

But when other early players in the market such as UUNet were cherry-picked, for billions of dollars by huge corporations, the fiercely independent Schrader refused to cede any control of his company. In fact, he wanted nothing less than to see PSINet stand toe to toe with industry behemoths such as AT&T and WorldCom.

To run with he big dogs, Schrader took on a series of huge financial risks to expand his company into a major international player. His biggest bet ultimately led to his downfall In March 2000, with the tech market at its peak, PSINet spent $1.9 billion to acquire Metamor Worldwide, including an 80 percent stake in its e-consulting subsidiary xpedior.

Unfortunately for Schrader and PSINet shareholders, that e-business sector tanked (Xpedior is now shopping itself around), forcing the company to write off almost half of the purchasing price.

The company's stock was delisted from the Nasdaq April 27 after its annual report stated hat PSINet had lost a staggering $5 billion for the year, including $3.2 billion in the fourth quarter. PSINet is one of many sad tales to tell about the telecom industry downturn. Fresh capital is hard to come by, corporate technology budgets have, shrunk considerably, and any likely buyers are waiting for post-bankruptcy fire sales as small struggling independents meet their demise.

For telecom players like Schrader, it's become a market even too tough for Lady Luck.

COPYRIGHT 2001 Standard Media International
COPYRIGHT 2001 Gale Group