TheStreet.com article released few minutes ago comparing WCAP & CMGI:
Wow, great article just went online. I'm trying to find out more about this (WCAP) company but
am not getting much luck. Awesome, I never even heard about Big Flower until a few minutes ago when looking up the CMGI board. In related news, The Yahoo! stock board for WCAP says the message
board hasn't even started there yet so I checked over here and there are a few
messages. So is WCAP a good buy for those too late to the CMGI bandwagon?
Anyway, here's the article. To get an HTML-ized version, please get a trial
subscription and go to
thestreet.com to check out all the cool graphs
and links! - George N. (Netconductor.com)
Internet
Winfield Capital Aims to Start Up Strong Track Record
By George Mannes
Staff Reporter
3/25/99 11:00 AM ET
URL: thestreet.com
Looking for the next CMGI (CMGI:Nasdaq)? Some think they have found it in
Winfield Capital (WCAP:Nasdaq).
The White Plains, N.Y.-based company, whose full-time staff is limited to a chief
executive, a chief operating officer, a chief
financial officer and a clerical worker, invests in privately held businesses, with a
particular emphasis on Internet-related
companies. And when those private companies go public, the boost to Winfield's
portfolio value could be huge. The story
sounds much like that of CMGI, the Andover, Mass.-based Internet investment
company whose share price jumped from
about 13 1/2 to as high as 226 over the past 12 months, thanks to its investments in
companies like Lycos (LCOS:Nasdaq)
and GeoCities (GCTY:Nasdaq).
Picking winners has made CMGI an Internet darling to investors, but its recent price
hike has made the company's stock too
rich for some tastes. Winfield Capital provides investors a more affordable entry into
the world of Internet venture capital, but
can another a small company put together a winning track record?
Winfield is one of the more than 300 small-business investment companies -- officially
known as SBICs -- that are licensed to
invest in small businesses with money provided by the Small Business Administration.
Rarer still, Winfield is one of a
handful of SBICs that isn't a private partnership, but a publicly traded company.
Winfield has an investment pool of about $30
million, with a sizable part of that money lent by the SBA at less than a 7% interest
rate, according to Paul Perlin, Winfield's
CEO. (By comparison, CMGI had no trouble raising $272 million just for its latest
venture capital investment fund.)
The high-tech profile of Internet companies runs counter to the standard image of
SBA-aided companies, but the usual Internet
start-up does meet the SBA's criteria of having a net worth below $18 million and an
annual net income of less than $6 million.
And Winfield isn't the only SBIC to make such an investment: The privately held SBIC
Women's Growth Capital fund, for
example, has stakes in Women.com Networks and womenConnect.com.
*Estimated average price. Source: Baseline, Winfield Capital
So far, only one of Winfield Capital's investments has generated jackpot returns. The
company invested $1.7 million in online
retailer Cyberian Outpost (COOL:Nasdaq) in late 1997 and early 1998, before
Cyberian Outpost went public. Now,
Winfield Capital's stake of more 1.4 million shares is worth about $30 million. Winfield
also owns a piece of the recently public
RoweCom (ROWE:Nasdaq), which helps companies manage their subscriptions to
periodicals. Winfield Capital's stake,
more than 150,000 shares bought for $1.5 million in December, is now worth more
than $4 million.
Source: Baseline, Winfield Capital
But more IPOs are on the way. Winfield has stakes in three companies that have
registered to go public: Juno Online
Services, which provides Internet service and free email; WorldGate Communications,
which provides Internet connections
via cable TV; and Mpath Interactive, which started out as an online gaming company
but now focuses on selling tools to
help sites build online communities.
"The Internet space has been pretty important to us," says Perlin.
Not all of Winfield's investments are Internet-related. A sizable part of the portfolio,
most recently itemized in an annual filing
from a year ago, is made up of loans to such mundane businesses like Bob's Auto
Body Shop and a restaurant called the
Fishmarket Inn in Westchester County, N.Y.
These loans are holdovers from before Perlin came aboard in 1995 and switched the
company's investment focus from loans
to investments involving an equity component. Perlin brought in as COO former Chase
Manhattan (CMB:NYSE) executive
David Greenberg, who is also co-founder and president of a dog-chew company on
whose board Perlin served. Greenberg
sold the company in 1995 to pet-product giant Hartz Mountain. Perlin's brother, Scot,
a former American International
Group (AIG:NYSE) executive, went from part-time to full-time status as the CFO
within the past year.
Earlier this month, Winfield's stock shot up to as high as 25 1/2 from the low teens as
more investors caught on to its Internet
stakes. But the primary issue for investors in Winfield is whether the investments
warrant the stock's valuation. The yardstick
for measuring how well the company does, says Paul Perlin, is the value of its
investments. "Our primary objective is to
increase net asset value," he says.
As of Dec. 31, Winfield's investment portfolio was valued at $40.5 million; with 5.7
million diluted shares outstanding, that
portfolio was worth about $7.08 a share. Add in other assets, including cash, and
subtract out liabilities -- primarily an $8.3
million loan from the SBA -- and you end up with a net asset value of $5.75 a share.
But that doesn't include the possible value of other investment stakes in companies
such as San Jose, Calif.-based TeraStor, a
company that is developing a high-capacity, low-cost electronic storage medium for
backup or library solutions, and
Commerce One, a Walnut Creek, Calif.-based company involved in
business-to-business commerce.
"It's really hard to figure out what the net asset value is" for Winfield Capital, according
to one hedge fund manager who has
stock in Winfield. The manager bought into the stock at 9 a share, selling half at 20 1/2
earlier this month after the stock's
run-up. But that uncertainty hasn't deterred the manager. "I was extremely impressed
with the number of deals these guys got
into very quickly," the manager says, citing Winfield's "ability to find companies that are
going to go public in a very short
period of time and buying at a big discount to public market valuations."
Paul Perlin says his company is developing a good track record. "I think we're
beginning to demonstrate that we have the
ability to access a better-quality deal flow," he says.
But it's more difficult nowadays for small companies to put together the kind of track
record that CMGI did in the past, a
mutual fund analyst points out. Too many people are chasing after deals in the wake of
CMGI's success. "I would be
skeptical," the analyst says, adding, "It doesn't mean it can't be done."
Certainly Paul Perlin is aware of CMGI's benchmark, but he says it's premature to
compare Winfield to CMGI. "I would only
be delighted if we could put together a performance record that could warrant that
kind of comparison," he says. "We just
hope we'll be able to put together a portfolio and have a good batting average."
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