BY TERRY SAVAGE

Barely 11 months later, Flip's wings have been clipped, as the Nasdaq stock market collapsed, taking with it the prospect of initial public offerings that made early investors wealthy.

Though divine did pull off its own public offering July 11 at $9 a share, many of its start-up subsidiaries have failed, while others have been merged, diluting divine's ownership. And all have struggled through restructurings and layoffs.

Divine interVentures' stock closed Friday at $1.81, down 19 cents a share. But it's not only Filipowski's wallet that has been diminished. His reputation as a visionary, and leader of Chicago's technology sector, has been greatly tarnished.

Has the experience softened his outrageous attitude and bellicose pronouncements about the death of the old economy?

When I sat down with him, I found him slightly chastened--but still anticipating the creation of huge wealth through technology. This time, though, he says it will be made on the downside of the bubble.

On the meltdown

I'm eager to ask the burning question: Are you humbled by the market's reaction to your business plan this past year?

"I have always been humbled by the cycles the world goes through, and the laws of nature that work, and I don't think this is a new experience for me at all."

You didn't see this coming?

"I absolutely did."

Why didn't you tell me last year?

"I always talk about the velocity and short inflection points, how high the highs, how low the lows, and how quickly things die out. . . . Yeah, absolutely I'm sensitive to how quickly things change. That was the whole point of the message. Things change very quickly, they come and go. New things arrive, and they obsolete old things."

Did you know you'd be one of those "old things" that came and went?

"I don't think I've gone yet! If somebody counts me out, they don't know me! Who says I'm out? I can't argue with their perceptions, but they're not my perceptions."

On the new Divine

Flip informs me that divine is no longer an "incubator" of companies that included names like Parlano, Buzz, Oilspot, Dotspot, Farms.com, Pocketcard, Mercantec, and many more. The new Divine Inc. is an "enterprise software" company.

"My perception going forward is that I'm going to erase from people's minds the individual companies [that Divine nurtured]. They'll no longer think that way, because it translates into keeping us in the category of an incubator, and I'm going to erase that from people's perceptions. They're going to think of us as a software company.

"From Day One, we said our principal investment was in the enterprise software space. And those investments we did in seeding and growing companies have matured to the point where now they're real companies. . . . And now we are adding acquisitions to the mix--companies that others seeded and funded. Our vertical investments were intended to be the test beds for our infrastructure software, which we're now going to take to the marketplace."

Wow, I think, this is truly what they mean by revisionist history. I remind Flip that a year ago he was talking about going public with these companies.

"I truly and earnestly do not think that what I'm talking about is revisionist, other than the way one interprets what I say. The goal was always the best way to create value. The difference between then and today is that back then it was cheaper and more cost effective to build companies. Today it's more cost effective to buy them. Times have changed, and we've adjusted."

On doing deals

There will be plenty of money to make acquisitions, it seems. Flip reminds me that he has a boatload of cash on hand.

"We have over a quarter of a billion dollars, and that's just at the holding company level. So we can take advantage of the fact that things today are in the downside of the cycle, and very inexpensive to buy."

But, I protest, that's even more than the $120 million raised in the public offering. Is it fair to sit on that cash, or has he considered giving it back to divine's public shareholders by buying back the stock?

"It doesn't work that way, but it's nice to know we are solidly funded."

I ask about the burn rate--the rate at which they will use up the money.

"We'll probably be going through--in a combination of burn and expenses we expect to incur--we'll probably hit a low point of about $150 million before we start generating cash, sometime next year."

Filipowski won't break out which companies he expects to add to his cash flow, reminding me to consider the whole company as Divine Inc.

On duty to shareholders

I ask what he'd like to say to his shareholders.

"Hang on. You'll probably make a lot of money. And if you don't want to hang on, sell, and I apologize for the fact that you lost money. I don't feel very good about the fact that the stock is at a buck and a half now. But that's the way life goes. Sometimes you only lose money, sometimes you lose your life. You go to sleep, and you don't wake up. That's the way life is."

It's the only time during our conversation that Flip seems down--and with good reason. He's just come from the funeral of one of his former top employees, 41-year-old Dave Onak, who died in his sleep of a heart attack.

I press on, asking about his own net worth.

"I didn't do this for the net worth. And I expect that my efforts at Divine will yield an increase in my net worth when the final tally is in. When? Whenever I say so. Sometime in the future. When I cash out, I expect, will be when we have on a net-net basis made some money."

On eating crow

Do you still believe the old companies are dinosaurs?

"Have you read about Montgomery Ward, Sears, Xerox?"

So your theory of old dinosaurs has not changed?

"Certainly not."

But what about these baby dinosaurs--all these Internet companies--dying off?

"Of course they die off. I never said that's not the case. I said the consolidation is merciless. I said it then, and I say it now. The likelihood of some company lasting five years, a company that started in the last few years, is almost zero. The casualty list is going to be enormous, the impact of the downswing is going to be enormous. On record, last year what did I say about Amazon every time? That it's just a lousy retail business with lower margins."

So what will survive?

"The Internet. It will be one of the most recognized inflection points of our era. It will permeate all parts of our economy."

On investment strategy

"I have run into people lately that have given me sort of the full range of those sad stories--everything from blaming me for every last bit of it to those who said they thought if they had their investments in Lucent and AT&T they'd be secure, and they're just as broke as everyone else--so there's no escaping it. I think this market will not have a floor created until there's a traditional capitulation--and that means everybody runs for the exits.

"At the wrong time, almost everyone will cash in everything they have, and turn it into cash to create that bottom--and regret it. What else is new? Of course it's going to happen. When you're 50 you know that. When you're 25 and just got off Rush Street, you don't think that way.

"It's not like this is going to be a lesson that will keep people from investing in the next new thing. It'll just be the same thing again the next time, because that's the way life is. It's just a cycle, and it's supposed to be that way. It's good that way. That's what makes it life. Otherwise we'd live forever and always be 25."

On the outlook

"I think we're in for a very hard landing. I think it will get ugly. Everywhere. I think we haven't experienced yet the full impact of the downward spiral. [Not only is there] a negative impact of higher energy prices, but there's been an intervention in the cycle to slow down a nonexistent inflation. I'm sure that the cycle, before everybody capitulates and it forms a bottom, may impact on all sectors, including real estate. If it does, then people will react to the fact that they feel less wealthy, become conservative because of their pessimism, and stop upgrading houses, cars or whatever they spend money on. And that translates into a significant trickle down of bad news.

"In short--I think it's gonna get worse before it gets better."

On Chicago

"Chicago I've always felt is a wonderful city, with a diversified economy, and it will have a wonderful opportunity to participate in coming hot spots, including biotechnology."

But as for the development of Goose Island into his corporate headquarters: "It's history. It would have been good for the city and the area. If we had $2 billion it would still be good for the city. But we don't have the money, and therefore I can't do it. Just like a lot of other charitable things I would have done."

Charitable?

"Well, at least corporate responsibility to a community. Those things you do when times are good, but cut out when you can't afford it any more."

On lessons learned

"I just lived through another cycle. I've said for over a year, that the next boom is going to be involved with the human genome and gene therapy. We'll probably pay the guy that gives us 50 years extra life more than we end up paying the guy who gave us Windows 98, and I suspect there will be a few more gazillionaires formed out of that. But, as a cynic, if we get 50 more years of life, we'll all just have an opportunity to go broke six more times."

But Flip can't stay completely negative or cynical.

"What you've got to say is no matter how bad any of this could hurt you, if you've got the skill sets, the brains, you have the ability to come back. Wait for the next cycle, or participate in the down cycle, making money on it. Hell, most of the wealth in this world has been created by people who took advantage of the downstrokes.

"More money will be made on consolidation in the downside of this bubble than on the upside. We aren't finished yet. Before it's over, before I call it quits in this bubble, I believe I can get the stock value over 9. Let me finish this bubble."

Terry Savage is a registered investment adviser for stocks and commodities and is on the board of directors of McDonald's Corp. and Pennzoil-Quaker State Co. Send questions via e-mail at savage@suntimes.com. Her third book, The Savage Truth on Money, recently was published by John Wiley & Sons Inc.

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BIOGRAPHY

Andrew J. "Flip" Filipowski, 50, grew up on Chicago's North Side, reared by his Polish-born parents.

He graduated from St. John's military academy in Delafield, Wis., in 1968, and went on to the University of Illinois at Chicago. He changed jobs several times in his early career, starting as a computer operator at Time Inc., then Motorola Inc., A.B. Dick & Co., and finally moving to software pioneer Cullinet in 1973.

Success came when he started Platinum Technologies in 1987, and he sold the company in 1999 to Computer Associates for $3.5 billion--at the time, a record price for a software company.

He became an angel investor, and funded Internet and technology start-ups with a fervor that eventually translated into the creation of divine interVentures inc, a collection of 52 start-up companies that Filipowski called a zaibatsu, and in practice was part incubator and part operating company. By whatever name, the zaibatsu was almost vaporized in the dot-com meltdown of 2000.

Last week, Filipowski formally abandoned the zaibatsu business plan, and said the renamed Divine Inc. will focus on being a software company, a plan that in the past has led Filipowski to great success. Using $16.5 million of depressed divine stock, he bought a Kentucky software maker, SageMaker, and signed an alliance with Computer Associates to market software.