Behind last week’s news that San Francisco-based NextCard Inc. is up for sale is a tale of two Orange County investors.
AST Computer Inc. co-founder Safi Qureshey and Newport Beach-based venture capital firm Forrest Binkley & Brown both invested in San Francisco-based NextCard Inc. a few years back. Last week, the issuer of credit cards via the Internet said federal regulators had slapped curbs on its lending, and the company was putting itself up for sale.
Forrest Binkley, an early investor in NextCard, sold most of its stake in the company shortly after NextCard’s 1999 public offering. The firm realized more than $70 million in the deal, making NextCard one of the firm’s most profitable investments in the past three years.
Qureshey, also an early investor, decided to stay with NextCard. The result: Qureshey likely saw a more than 90% decline in the value of his holdings after the company went public. NextCard’s stock, which touched a high of 40 in 1999, was trading below 1 last week.
Qureshey and Forrest declined to comment for this story.
Qureshey, a NextCard board member, told the Business Journal a few months back that he believed in the company and its management and still was a major shareholder.
“I normally don’t sell my investments, unless I need the money to buy a house or something,” Qureshey said at the time.
At one point, Qureshey held more than 500,000 shares in NextCard, while his venture fund, Skyline Ventures Inc., also was a large investor. Qureshey brought in Forrest Binkley as a NextCard investor as well.
Qureshey has unloaded NextCard shares this year, including the sale of 16,100 shares worth $76,515 on Sept. 25. But, for the most part, Qureshey’s sales have come as NextCard shares have been on the decline. Back in April, he sold 14,000 shares at $10.25 each. On Sept. 28, he sold 6,000 shares at about $5.75 apiece.
In the past six months or so, Qureshey and Skyline have sold close to 270,000 NextCard shares. Just in September, Qureshey and Skyline sold 103,000 shares in the credit card issuer. In 1999, Qureshey held around 536,000 shares.
Forrest partners bought shares in NextCard after being convinced about the company’s business model. The venture firm decided to sell most of its holdings after NextCard’s public offering as part of a self-imposed exit strategy.
NextCard, which started its operations in 1997, reported a third-quarter net loss of $53 million, vs. a loss of $14.4 million in the year-ago period. NextCard also said it had retained Goldman Sachs Group Inc. to help with a possible sale of the company to a larger financial firm. Poor market conditions and regulatory limits pushed it to pursue a sale, the company said.
The recent quarterly results mark a sharp turn in fortunes for once high-flying NextCard. After its public debut, NextCard stock traded at around 40, and the company quickly ramped up operations.
As of Sep. 30, NextCard had $2 billion in outstanding loans and 1.2 million customers. The company said it needs about $140 million in additional capital to meet the minimum standards set by the U.S. Office of the Comptroller of the Currency. n
