Here is the interview:
Ryan Jacob led the Internet Fund to a near 500 percent gain in a two-year period. That's incredible. At that time he was able to capitalize on the success of Internet pioneers, like America Online (AOL: news, msgs) and Yahoo (YHOO: news, msgs). But his new fund is going to have a different focus. Jacob now thinks smaller may be better when it comes to investing in cyberspace.
RYAN JACOB: I think today, just with the enormous mega-caps we're seeing with some of the top, top tier of Internet companies, they're just not providing the kind of upside that we require for the amount of risk we feel we're taking. So we just find today a lot of the better values in the small to mid-sized companies that we think are growing very, very quickly and establishing market positions that we feel, over time, will enable them to reach much higher valuations than they have today.
MS. TISDALE: So you think those stocks are better bargains?
MR. JACOB: On a relative basis. You know, again, we're taking more risk because we're investing in companies that are earlier in their business lives. But if they're able to execute in the business models, capture a share of this growing market, they should be able to show significant price appreciation.
MS. TISDALE: So in the small and mid-cap world, what are some of the stocks that you like?
MR. JACOB: OK. In terms of the smaller names, they would probably be companies like StarMedia (STRM: news, msgs), the leading Latin American portal -- very well-run company, really the first mover in Central and South America, establishing a horizontal portal similar to what we have here in the U.S.
We also like Ask Jeeves (ASKJ: news, msgs), which is a consumer and corporate question-answering service. And really they're providing significant value for business who are looking to cut down on very expensive customer service costs. And by employing an online solution, it's been very, very effective, and they've shown a lot of traction in their business.
One of the names that we like quite a bit -- it's somewhat controversial -- is NetZero (NZRO: news, msgs), offering free access, free Internet access. It's been in the news lately. And we think that this is where the market's heading. NetZero has the opportunity to become a brand leader for offering free Internet access to consumers. And we'll be seeing more and more of them over the coming three to six months. They may put some pressure on some of the incumbents that are still looking to charge for dial-up Internet access.
MS. TISDALE: You mentioned NetZero. Is free access where we're headed with the Internet?
MR. JACOB: Yeah, well, it's still somewhat controversial as to whether or not this model can work. Today the model doesn't work. Today telecommunication costs are too high. The amount of ad revenue that these companies can generate is too low. However, within a year or two, we think, with telecommunications costs dropping and more efficiency on the ad revenue side, that they will hit an inflection point, and this model will be profitable. So if this does happen in a year or two, we think NetZero, as well as some other free ISPs, will be very positioned. And, you know, we really do think whether the model works today is somewhat irrelevant. We believe it will work a year or two from now, and you really want to be with those companies that are positioning themselves today.
MS. TISDALE: Do you think 10 years from now we're still going to be reading these headlines about these multi-hundred percent gains for Internet companies?
MR. JACOB: I do, and the reason being I think the Internet is more of an evolutionary process, and today we're seeing a lot of enthusiasm in business-to-business networking companies, Linux-related companies. As the Internet continues to evolve, there will be new businesses forming.
MS. TISDALE: Speaking of deepening its impact on our society, Jacob pointed out that today 40 percent of U.S. households are on line. He thinks that number is going to go to 70 percent over the next few years. That would be an even bigger boon to Internet companies, if you can imagine that.
JR
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