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State may take
stake in ’Net firm
WorldPoint

The proposal would
settle a past-due loan

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By Tim Ruel
Star-Bulletin

The state government, looking to collect on a high-tech loan that has been past due for more than four years, could soon end up with a stake in one of Hawaii's most lauded Internet start-up companies.

WorldPoint Interactive Inc., loaned $580,000 by the Department of Business, Economic Development & Tourism, said in 1996 they did not have enough money to pay the loan, and has since postponed payments while discussing the matter with the state. With interest, WorldPoint now owes the state $788,797.37.

The attorney general's office, which has watched the case for several years, said it is time for WorldPoint to pay, or the state will keep the collateral of the loan, including mortgages held by the company's founders.

"We are really trying to work with them, because it's in the state's best interest," said Myra Kaichi, a deputy with the attorney general's office. "The state would really like to see this company succeed. It's providing a lot of jobs. On the other hand, this is taxpayer money. We have to recoup it."

Other officials said the matter raises the question of whether high-risk Internet start-up companies should be backed by taxpayer dollars in the first place.

WorldPoint, founded in Honolulu in May 1995, translates Web sites into different languages for businesses seeking to expand into foreign markets. The company started with six employees at the Manoa Innovation Center. Now based in downtown Honolulu, WorldPoint has grown to 120 employees worldwide, with 75 in Hawaii and the rest in offices in Tokyo, Zurich, San Francisco, Dallas and Hong Kong.

WorldPoint got the state loan in 1995, along with an attractive interest rate of 7.5 percent.

President Massimo Fuchs, a Switzerland native who joined the company as chief financial officer in 1996, credited the loan for keeping WorldPoint from moving headquarters from Hawaii to the mainland in search of capital.

But four years ago, WorldPoint was short on cash, so it postponed payment to the state.

State officials let WorldPoint find a way to repay the loan on its own time. But after it started putting off payments on the loan, WorldPoint began to expand and attract investment. The company has now raised $14 million in venture capital, Fuchs said.

Earlier this year, WorldPoint moved its Hawaii employees out of the Manoa Innovation Center into the 12,000-square-foot penthouse at 1132 Bishop St.

WorldPoint, which spent $1 million on hardware alone for its new Asia-Pacific headquarters, also announced plans for an initial public offering of stock, which was to have happened by September. The company now plans to hire another 50 employees here and take on another 16,000 square feet of space at Bishop Street.

"We've been following them in the newspaper and all the wonderful things that have been happening," Kaichi said. "When it became apparent they weren't going to take care of the loan, we had to move on it." The state moved to settle with WorldPoint when the company failed to go public by September, she said.

Under proposed deal, Fuchs said he has offered to secure an outside line of credit as additional collateral, a deal with which the state appears comfortable.

Meanwhile, WorldPoint and another state agency would have until May to find investors to create a stake in the company, which would be used to pay off the loan.

The Hawaii Strategic Development Corp. has already talked to investors about forming a general partnership in WorldPoint with the state as a limited partner, said President John Chock. Chock said WorldPoint is a wise investment because it has unique niche in a global market, and it has used the loan well, even if it isn't current on payments.

Fuchs said Chock came to him with the idea of a stake after the WorldPoint went past due.

"We saw it as a positive element to have the state as a shareholder," Fuchs said today from WorldPoint's office in Zurich.

"Of course, we could pay back the loan and be done with it," but that would curtail an opportunity for the state to invest in WorldPoint, as it did with another high-tech company, Digital Island Inc., he said.

Also founded locally in 1995, Digital Island has since moved headquarters to San Francisco and went public last year, giving the state a windfall when it later sold a portion of its equity.

However, because of a lack of precedence for the state to convert WorldPoint's debt into an equity stake, the talks have dragged on, which is why the loan has not been paid, Fuchs said.

Joseph Blanco, technology adviser and executive assistant to Gov. Ben Cayetano, expressed doubts about the WorldPoint loan. "To me, if we give them a loan, they should pay it back," he said. "We did not pay them a grant."

Fuchs noted the state is covered on the loan because the collateral includes the mortgages to those homes of its co-founders.

But Blanco noted the case presents a larger question of whether risky loans to high-tech start-ups is appropriate for taxpayer dollars. "We really need to kind of reassess ourselves and ask, 'Is that a role government should play?' " Blanco said.

The state furnishes the loans under the Hawaii Capital Loan Program, started in the 1960s to fill an investment gap left by Hawaii's banks, which typically ask for more collateral than start-ups have, said Chock, who runs the program. The state still needs the loan program, he said, since sources of start-up capital have not flourished in the state yet.

Meanwhile, Fuchs said he is confident the company can make a deal with the state that would avoid forced collection and allow it to continue expanding.

The company is already looking to open another office in New York to accommodate one of its newest customers, IBM. Also, WorldPoint hasn't shelved plans for an initial public offering either, Fuchs said, though the company would rather focus on finding a partner first.