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To: Skeeter Bug who wrote (36407)	1/24/1999 7:52:00 PM
From: Glenn D. Rudolph	Respond to of 164685

The Internet Capitalist SG Cowen Internet Research 18 demand; intermediaries in the process of buying and selling capital. And though we don't subscribe blindly to the notion that the Internet disintermediates all industries, we've got enough experience in our own business to recognize some potential inefficiencies that could be vulnerable to this disintermediating force. First, the speficis from ETrade. EOffering's plans are ambitious; they plan to underwrite equity offerings for smaller, high-tech companies and sell some of the shares via the Internet, with ETrade customers getting first crack at the online offerings. The targeted transaction size is in the $25-$50 million range (traditionally the boutiques' sweet spot) and something like 50% of each deal will be earmarked for small investors (versus the 10- 25% normally allocated to this group by bulge bracket firms), with the rest going to larger institutions. Importantly, EOffering plans to reduce the corporate fees traditionally associated with the underwriting process, now about 7% of gross proceeds, to something like 4-5%, with the timing of the first IPO later this year. Though we believe that small companies choose underwriters for many reasons other than price, we never bet against economic incentives and their ability to motivate. Interestingly, EOffering also plans to conduct much of the investment banking process, from roadshows to share distribution and research dissemination, over the Internet. Other transactions, of course, are in the works; convertible bond and debt underwriting, private placements and such. Beyond the simple pressure on costs, the emergence of EOffering should seem inevitable to either customers of or employees within Wall Street brokerage houses. The Street has long been a clubby business and, up until the last decade or so, tough to penetrate; information flow was pretty restricted to buy and sell-side analysts and the economics of trading made small order execution (<100 shares) prohibitive. This, inevitably, shut out the small guy. The Internet, of course, is a great democratizing force that has empowered smaller investors, those folks that have traditionally supplied the greatest amount of margin to the Wall Street value chain. Call it what you want, but the rising tide of the democratization of Wall Street (our favorite line, from a curmudgeon who survived the crash of '29: “the pedestrianization of Wall Street”) looks to be an inevitable trend whose impact we are just now coming to recognize. Beyond the very real pressures on fees, on distribution efficiencies, and on trading, this trend has the potential to change the very way Wall Street works. And though we'll have much more to say on the topic in another edition of The Internet Capitalist, we encourage Wall Street types to think hard about their place in our value chain; how important is your role in the process of organizing supply and demand for capital? Can the demand for your skills be eliminated by the Internet? Are you the only person between a portfolio manager and the information he desires? Can a CFO bypass you to get to the portfolio manager he really wants to speak to? Tough questions…tougher answers. The Net Hits Home We are never as happy as when we speak with an Internet entrepreneur or investor who, having embraced the Internet, made a big early bet that has paid off enormously; it reinforces our steadfast belief in the capital markets and risk taking. Usually these big winners were already Stanford MBAs, former executives at established firms, or existing portfolio/hedge fund managers whose demographic profile