With Bono on board, Roger McNamee’s firm was the first celebrity private equity outfit. Now the founders are struggling to prove their model makes sense

By
Bryant Urstadt and
Ari Levy

“I don’t know how many of you have a day job,” says Chubby Wombat, leaning into the microphone between songs. “But I do, and right now it sucks.” Chubby Wombat is the lead singer of a Grateful Dead-style jam band called Moonalice. He has long gray hair and wears a Philadelphia Phillies baseball shirt with the number “Four 20″ on the back. Tonight’s venue is Slim’s, a warehouse-style concert space in San Francisco’s SoMa district, with brick walls and a black ceiling studded with spotlights. There are maybe 200 people in the crowd, mostly folks who look like they have a Volkswagen bus somewhere in their past, or possibly out in the parking lot.

Wombat, you might have guessed, is a stage name. In real life, this man is Roger McNamee, managing director of Elevation Partners, a private equity firm that manages a $1.9 billion fund. McNamee is a Silicon Valley legend who ran a successful tech fund for T. Rowe Price (TROW), invested in Intuit (INTU) while at Integral Capital Partners, called the top of the dot-com bubble, and co-founded Silver Lake Partners, the highly successful tech-focused private equity firm.

As Chubby Wombat, McNamee is on a roll. Moonalice has served up 292,000 downloads of a catchy ditty called It’s 4:20 Somewhere. It’s a hummable tune about getting high—”4:20″ is stoner code for smoking time—that has bucked the odds and found an audience. It’s the breakthrough every artist dreams about, and tonight is particularly special for the song and the band. It’s Apr. 20…4/20. Tickets to the show are…$4.20.

As good as life is for Chubby Wombat, Roger McNamee might have a few good reasons to complain about his day job. Like many of its peers in the private equity world, Elevation Partners, the firm he founded with a roster of Silicon Valley talent and a rock star named Bono, has been struggling. Elevation’s largest position is in Palm (PALM), a $460 million bet that the once-dominant phone maker would not only survive but prosper with a hot new model. After Palm’s chief executive officer, Jon Rubinstein, announced in late March that the company would miss already grim estimates, three analysts set a coroner’s target price: $0. Palm was ultimately saved by Hewlett-Packard (HPQ), which offered $1.2 billion for the company on Apr. 28, enabling Elevation to escape with a narrow profit well below its original expectations.

Elevation’s other high-profile problem is a 40 percent stake in Forbes Media, which Elevation bought in August 2006. Although the company is private, and thus hard to value, Elevation’s estimated $300 million stake in the magazine and its Web site is well underwater. McNamee’s conviction that growth in online advertising would outstrip the decline in print revenue has not been borne out. Last year he stepped down from the board, with his partner Bret Pearlman taking his place. At Forbes, major cost-cutting initiatives have ensued.

Not surprisingly, certain indelicate elements of society (cough: blogs!) have been making a fine sport of McNamee, Wombat, Elevation, Bono, and Palm. In March a site called 24/7 Wall Street ran a story titled “Bono Becomes the Worst Investor in America.” That sparked a flurry of mainstream coverage everywhere from The Wall Street Journal to the Times of London and a frenzied trade in plays on U2 lyrics, mostly a long the lines of “Bono’s Investment Firm Still Hasn’t Found What It’s Looki ng For” and “Palm Sale Is No Beautiful Day for Bono.”

The West Coast office of Elevation Partners, where McNamee sat down for an interview the week before HP made its bid to take over Palm, is on Sand Hill Road, the Wall Street of Silicon Valley, a world away from Slim’s. It’s a place of quiet opulence, more like a spa than a financial office. You park in a little lot, under drooping trees and blooming shrubs, and proceed through a spacious lobby of pale pink marble with glass doors at the back that open onto still more gardens. There are photographs by Ansel Adams on the walls and a little sign that directs visitors to the right if they wish to visit the West Coast office of Kohlberg, Kravis & Roberts, and to the left for Elevation.