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April 1, 1999

Wit Capital's Sweet IPO

By Jeffrey R. Hirschkorn

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Small technology companies suddenly have several new investment banks eyeing them for underwriting and other deals.

Some even know the value of the Internet, the sharpest technology on Wall Street. The hottest of these investment banks with an Internet edge is perhaps e-syndicate pioneer Wit Capital Group.

The New York-based company announced last month it is planning to complete an initial public offering in the second quarter. In addition to underwritings and offering individual investors access to IPOs, Wit Capital sponsors secondary offerings, private placements and venture-capital deals.

While Wit Capital will face increasing competition as the Internet eventually becomes a more popular tool in allowing individual investors to buy shares in an IPO, the company had a headstart over rivals.

Launched in 1997, Wit Capital was the first to achieve fame as a so-called e-manager, using the Internet to co-manage stock underwritings. In 1996, company founder Andrew Klein conducted an online IPO for shares in his Spring Street Brewing.

More recently, Wit Capital participated in the January IPO of (Nasdaq:MKTW). The company, a financial-news provider, soared in price to $130 a share in its first day of trading, finishing with an opening-day gain of 473.53 percent.

Wit Capital's planned IPO comes as several new outfits are forming, each targeting the capital needs of small-scale technology companies.

At the helm of these investment banks are some big-time Wall Street executives: William Hambrecht, co-founder of San Francisco's Hambrecht & Quist, Walter Cruttenden, founder of Cruttenden Roth in Irvine, Calif., and Thomas Weisel, founder of San Francisco-based Montgomery Securities (now part of NationsBanc Montgomery Securities).

By their own admission, the new firms are targeting small technology companies they believe are being neglected by the California-based investment banks that still bear their names.

For much the same reason, some market sources believe that Wit Capital's own offering led by Bear Stearns & Co., may be well received.

"Wit is likely to offer 15 percent of the firm," said Tom Taulli, a Newport Beach, Calif.-based research director for Silicon Investor, in an interview several weeks before the Wit Capital IPO was announced. "This is probably the right time to strike because brokerage stocks are red hot. The number of online trading accounts continues to increase at record levels."

W.R. Hambrecht, the new company founded by Hambrecht, recently unveiled plans to offer IPOs directly on the Internet through an auction process. This is a departure for equity issuance, since the highest bidders get the stock first in an auction.

Building upon the brand name of Palo Alto, Calif.-based E*Trade, Cruttenden recently joined his forces with the online discounter to launch E*Offering.

E*Offering is an investment bank that plans to sell stock online to individual investors. Based in Newport Beach, E*Trade owns 28 percent of E*Offering. Sandy Robertson, founder and former chief executive of San Francisco-based Robertson Stephens (now part of BancBoston Roberston Stephens) is also an investor.

The outfit plans to float a new class of electronic services, including distribution of up to 50 percent of every IPO to retail investors online.

"We have lined up 30 companies that will sell shares to investors via the Internet," said Len Purkis, E*Offering's chief financial officer, in a February 10 press conference.