IPO First Words-Company Wit Capital-Who We Talked To Ronald Readmond, President and co-CEO
IPO Date June 4
Offering Price 9
Stock High 38
Stock Low 9
Last Update: 10:20 AM ET Jul 9, 1999
Profile: New York-based Wit Capital (WITC: news, msgs) is an online investment bank that's participated in about 100 IPOs, including CBS.MarketWatch.com's. Chaired by Bob Lessin, former vice chairman of Salomon Smith Barney, Wit Capital sells IPO shares at their asking price to its members. Ronald Readmond, vice chairman, co-chief executive officer and president, joined the firm May 1998. He had been vice chairman of Charles Schwab (SCH: news, msgs).
Notable: In April, Goldman Sachs invested $25 million in Wit Capital. Among Wit Capital's bevy of star recruits is high profile Web analyst Jonathan Cohen, who defected from Merrill Lynch to become director of research. Wit shares have been screaming higher lately as the Internet IPO market has heated up. Shares went from a low of 9 on June 14 to a high of 38 on June 28. Wit's planning to push into the online broker business this fall by offering after-hours trading.
How has Goldman Sachs helped you guys to date, and what can we expect from the partnership in the near future?
Readmond: We are delighted with Goldman Sachs, No. 1 as a strategic investor and No 2 as one of a number of investment banking partners. They are extremely, highly regarded in their space. Many of the companies that they bring to the public market are companies that are also in our space. There's a natural relationship based on the issuers we work with.
Wit Capital is aimed at making IPOs more accessible to regular investors. How many members do you have and are you seeing a lot of participation from non-institutional players?
Readmond: We are out of the IPO quiet period, but we're a week away from an earnings announcement. So any metrics that deal with revenues or profitability would not be appropriate now. Clearly our distribution channel is exclusively to Internet-based, individual investors. The buyers of the IPO shares that we sold have almost exclusively been individual investors.
Are we going to ever see a lead-managed deal from Wit?
Readmond: We are comfortable in the position of co-manager. And there are no current plans for us to begin to lead-manage transactions. We'd much rather work with a major, lead underwriter with a great track record than compete with them.
Is there a danger of being too dependent on the Internet IPO market -- aren't these issues going to dry up sooner or later?
Readmond: Well, let me cut it a couple of different ways. I don't believe that the current Internet market is a short-term phenomenon or a bubble, it's part of a long-term, major restructuring of the U.S. and world economy. It's as profound as the Industrial Revolution was. The part of the economy that's restructuring is requiring capital.
We are not only in the business of distributing IPOs. We are fully engaged in every facet of capital formation. In addition to selling IPOs to individuals, we have a private equity group. We're in the process of launching a private equity fund which will be made available to accredited individual investors, and we have a significant strategic advisory business. While sources of capital do dry up in a cyclical way, demand for capital does not dry up. So it's important to have access to private capital and to have access to strategic advisory relationship, each of which is a source when the IPO market softens.
So while you believe in the long-term strength of the Internet, there are some cycles?
Readmond: There clearly is cyclicality. That's why it's important to tap different sources of capital. We're in the online brokerage business. We hope to launch an after-hours trading facility in the fall of this year.
Competing online banks -- E-Offering (EGRP: news, msgs) and W.R. Hambrecht's OpenIPO. What do you think about them?
Readmond: I don't think they're competing online banks. Our view is this business is all about brand, reputation and track record. If you look at the companies that Wit Capital has been engaged by and the lead underwriters with whom we've worked, it's a very impressive list of names. We are way ahead of both E-Offering and W.R. Hambrecht in terms of number of offerings, breadth of distribution, and quality of offerings.
In regard to commissions on IPOs from underwriters -- are the online guys going to drag them down or is seven percent here to stay?
Readmond: There is always, in a free market, a natural price point which has been seven percent historically. Issuers have been comfortable paying that money for the value that a top-tier lead underwriter providers. Online distribution is much less expensive than distribution in the physical world. There may be opportunity over time to see a reduction in traditional underwriting fees. We'd benefit from that, but it's not our objective to lower the spread.
How are you moving ahead with plans for after-hours trades in light of the SEC's cautionary remarks on the practice?
Readmond:Well, they have (been cautionary) and we clearly are. Their concern is the same as ours. Any initiative into the after-hours market must keep investor safeguards at the forefront. It has to do with fair markets, transparency, and equal access both to the markets and relevant news.
One concern by the SEC is flipping IPO shares -- selling them immediately after buying them at the offering price. Although Wit Capital has rules in place to discourage this, are you seeing people do it anyway?
Readmond: A buyer of a security has a right to sell that security whenever they wish to. We discourage flipping. If an individual sells an IPO within 60 days, they move to the bottom of the list for future IPOs.
Now that you're out of your quiet period, what was a major point that Wall Street may have missed that you'd been wanting to talk about?
Readmond:Well, there's been a lot of debate about after-hours trading. We've been silent on that point. The most import message -- and we've been addressing it by our actions and not words -- is focusing to build a high quality franchise by recruiting the best bankers and analysts in the country. That will continue in the future to further expand (our) brand and develop our reputation.
How are you able to attract big names like Jonathan Cohen?
Readmond: Wit Capital provides an opportunity to participate in the fundamental change in our economy. People that are excited about change and paradigm shifts are naturally drawn here.
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