NEW INTERNET INCUBATOR FOUND
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Rand Capital Corporation is a publicly held venture capital company, headquartered in Buffalo, New York, registered on the NASDAQ Small Cap Market under the symbol ''RAND.' Rand's investment strategy is to provide expansion capital and investment, as well as financial advisory services, to companies both inside and outside of the Western New York community.
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Little-known THCG, Point West, M&A West shares soar
Net incubators seek potent holdings
By Thom Calandra, CBS MarketWatch
Last Update: 5:23 PM ET Dec 22, 1999 More StockWatch
Commentary
SAN FRANCISCO (CBS.MW) -- Investors are lighting up Internet bulletin boards, searching for venture capital arms of publicly traded companies.
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The thinking goes: buy one Internet stock and you're dependent on one business, one set of managers, one balance sheet. And so on. Buy a venture capital unit, and you get to own dozens of these companies.
We explored this theme earlier in the week, identifying several Internet incubators that have little recognition against the likes of CMGI (market cap: $33 billion), Japan's Softbank ($90 billion) or Internet Capital Group ($50 billion). See the original report.
Indeed, after the hefty stock gains of these three Internet incubator leaders, investors are pushing the stocks of their smaller counterparts higher. Most individual investors, after all, can't afford to throw cash into a venture capital fund, which can require a minimum of $250,000, and usually more. So small investors seek proxies in the stock market.
Companies with names such as London Pacific Group, Harris & Harris Group, Frontline Capital Group, Winfield Capital and Point West Capital have (mostly) seen their shares gain sharply in recent days. Some of the smallest of these companies, like tiny Point West Capital (PWCC: news, msgs) in San Francisco and Harris & Harris in New York (HHGP: news, msgs), have seen their shares more than double in several days, thanks to the fervor surrounding Internet venture-capital companies.
Point West's market cap (see stock chart) is about $56 million; the company has a fast-growing portfolio of Web investments, including N2H2 (NTWO: news, msgs), a developer of Internet screening software for schools. Point West shares Wednesday rose 6 7/16 to 16 7/16.
Harris & Harris sports a $132 million market cap, based on Wednesday's closing price of 14 1/4 on Nasdaq. Nearly all of these companies, with the exception of London Pacific, trade on Nasdaq. London Pacific Group (LDP: news, msgs), an asset management company and insurer, recently moved its American Depositary Receipts to the New York Stock Exchange from Nasdaq.
George Nichols, an Internet stock analyst at advisory firm Morningstar, tells me stock markets in Japan, Germany, Hong Kong, Canada and the United States are filled with Internet venture groups. We'll focus for now on publicly traded ones in the United States. Practically all of them, by the way, have Fund, Group or Capital in their names.
THCG owns pieces of Interleaf, webMethods.com
"There's quasi-Net VC stock VirtualFund.com (VFND: news, msgs), the least appealing of all as far as I'm concerned. Also, THCG (THCG: news, msgs) has a stake in Interleaf (LEAF: news, msgs) and webMethods, a private company I've followed closely for months, which I predict will be one of the most successful IPOs next year," Nichols says.
Interleaf's e-content division helps companies find ways to transmit data and software applications via wireless methods, the Internet and through XML technology. Interleaf shares have risen to 40 or so from under 1 in a year. THCG owns stakes in several private companies, including iBeauty.com and RealTimeImage Inc.
THCG is active in Israel's venture capital market and in the Middle East. Closer to home, the company was an early investor in webMethods Inc., a Virginia provider of electronic-commerce software. Other webMethod backers include Dell Computer, Eastman Chemical and SAP AG. THCG Inc. shares rose 12, or 83 percent, to 26 1/2 on Wednesday.
VirtualFund.com sports a market cap of $50 million. THCG's market cap is $160 million. (See THCG stock chart above.)
Nichols, who was an early investor in Softbank, also mentioned Big Flower Holdings (BGF: news, msgs), whose market cap is $616 million.
More of the unknown incubators
Another relatively unknown Internet incubator, according to several investors I spoke with this week, is Rare Medium Group (RRRR: news, msgs). The company has a unit called Rare Ventures. The New York City company, which has a consulting arm for Fortune 1000 companies, says it employs 600 Internet professionals around the United States. Market cap is $1.5 billion. Rare Medium says it has funded 16 Internet-related companies and counts Apollo Management and Bear-Stearns as investors.
The Nasdaq bulletin boards are also filled with so-called incubators. One of them, M&A West (MAWI: news, msgs), says revenues for the most recent quarter rose more than 800 percent from a year ago to $2.1 million. A spokesman for the Silicon Valley, Calif., company, Rick West, says he expects M&A West to gain approval for a full Nasdaq listing in January or February.
Recent investments for M&A West include stakes in venture capital portal VentureList.com and online grocery provider VirtualGroceries.com. "MAWI has its hands in so many different ventures that it's a bit overwhelming," West told me Wednesday. M&AWest shares rose 3 3/8, or 52 percent, to 9 7/8.
The challenge for investors might be identifying companies whose portfolios of Internet companies can be evaluated in dollars. London Pacific, for instance, owns about $420 million worth of publicly traded companies, or roughly $26 a share, according to the company's most recently published list of holdings. The market cap of the entire company, which also reflects insurance and asset management businesses, is $608 million. On Wednesday, London Pacific shares sold for 37 3/4 on the New York Stock Exchange.
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