Here's a cheap & pretty safe way to buy into some very large IPO's. Look at the name Goldman when it appears in this press release.
Wit Capital, could be a cheap CMGI
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By R. Scott Raynovich
Redherring.com
June 5, 1999
"E-manager": what does that mean?
This question may have been on
investors' minds after seeing Wit
Capital (Nasdaq: WITC)
designated as "e-manager" on a
number of recent Internet IPOs.
(Wit Capital is a business partner
of Red Herring Communications.)
On Friday, the term took on an
even more robust meaning for
Wit. The Internet-based
investment bank helped underwrite its own offering,
raising $70 million through a successful first-day IPO.
Wit, the company that has helped
leading investment banks
distribute shares of IPOs over the
Internet, benefited from some
lucky timing, entering the market
on one of the strongest days in
several weeks. After selling 7.6
million shares at $9 per share, it
rose 5.69 points to close at
$17.69, a 63.19 percent increase
over its offering price. Now the
company must get down to the business of defining its
unique position on Wall Street.
GOLDMAN GIFTS
With its impressive war chest, Wall Street observers
are suddenly wondering whether Wit plans to compete
head-to-head with the white-shoe investment-bank
community that it depends on for deals, rather than
continuing in its somewhat secondary role as an
electronic distribution partner of these firms.
"Up to now it's just been viewed as a distribution
chain," says one director of an equity management firm
that is involved in underwriting IPOs, who asked not to
be named. "Internet distribution is a big-time thing and
it's here to stay, but defining it just as Internet is not
enough. You've got to get the deals themselves."
Goldman Sachs (NYSE: GS), which owns an
approximate 20 percent stake in Wit, has been aiding
Wit's emergence as an Internet distributor by giving it a
portion of shares from IPO deals that it leads. But Wit
has yet to lead-manage an IPO of its own.
"They are cementing relationships with investment
banks in terms of getting products, but one challenge
for them is to do their own deals," says Dan Burke,
analyst with Gomez Advisors, a market-research firm
that follows the online investment community.
THE DREAM TEAM
The Wit Capital management team, however, is not
made up of the type of people that are content to sit in
the back seat. The executive troika of Robert Lessin,
Ronald Readmond, and Andrew Klein bring a unique
combination of Wall Street experience, entrepreneurial
instinct, and technology savvy to the company.
Mr. Lessin, chairman and co-CEO of Wit, is a former
vice chairman at Salomon Smith Barney. In addition to
Mr. Lessin's traditional background, he's also emerged
as something of a cult figure in New York's startup
community. He's a partner of Dawntreader Fund I, a
venture capital fund, where he been active in ferreting
out new Internet business plans. He also serves on the
boards of several companies with Internet plans,
including MarketWatch.com (Nasdaq: MKTW),
Fingerhut, and iParty (OTC BB: IPTY). In the
process, Mr. Lessin has found some enthusiastic
followers.
"He's one of the smartest guys I've ever met," says
Andrew Merkatz, CEO of Predict It, a company in
which Dawntreader has invested. "I believe that 50
years from now, business school students will study
Bob Lessin alongside other historic financiers such as
Morgan and Rockefeller."
Ronald Readmond, Wit's vice chairman, co-CEO, and
president, is a former vice chairman of Charles
Schwab and a former managing director at the
investment bank Alex. Brown & Son (now BT Alex.
Brown).
The third player in Wit's cadre of executives, Andrew
D. Klein, is vice chairman, founder, and chief strategist
of the company. He gained fame as the founder of the
microbrewery Spring Street Brewing Company, which
in 1995 became the first company to complete a public
offering over the Internet. Mr. Klein's company
created a trading system that allowed investors to buy
and sell Spring Street shares over the Web. Wit
Capital grew out of this system.
RESEARCH RAMP-UP
None of the executives from either Wit or Goldman
were available for comment because of the company's
SEC-imposed IPO quiet period. However, some
information about where Wit is going may be gleaned
from the prospectus.
According to the S-1 document filed with the SEC,
Wit's basic business is such: "We are an Internet
investment banking and brokerage firm that uses
electronic mail and the Web to offer and sell shares in
public offerings to individuals."
In addition to selling shares to the public, Wit has been
building out its research department and also operates
a small online brokerage operation. It uses its own
online brokerage customers and partnerships with
many of the leading online brokerages, including Datek
Online, to allocate the IPO shares of deals to which it
is attached as the so-called e-manager.
What will it do with its newfound IPO capital? First,
the company needs cash to fund existing operations.
The company lost $8.7 million on only $2 million in
revenue in 1998. It also plans to use the IPO funds to
aid expansion of its investment banking and research
staff, elements that are crucial to Wit's aspirations as a
full-fledged investment bank.
Research, in particular, will be important for
developing the company's investment-bank persona.
The company has made efforts in the research
department, including the hiring of Jonathan Cohen,
previously head of Merrill Lynch's (NYSE: MER)
Internet equity research group.
"Wit is getting more advance from the standpoint of
their research capabilities," says Mr. Burke. "Hiring
Cohen from Merrill Lynch was very important to
them."
The proceeds from the IPO are also expected to be
spent on increased sales and marketing efforts. Such
efforts will be needed to attract the investors and
capital to generate its own deals. Until it does so, Wit
will continue to serve as e-manager, rather than lead
manager, of IPOs.
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