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December 1, 1999

IPO Roundup: Private Equity Online

By Robert Whiddon

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  • IPO Roundup: Private Equity Online

Emboldened by the efforts of e-underwriters such as Wit Capital and W.R. Hambrecht, a group of cyber-financiers is using the Internet to raise private equity for small companies.

"The Internet provides the opportunity to allow more organizations to raise money among wealthy investors and venture capitalists," said Susan Woodward, executive vice president of research and chief economist at San Francisco-based Offroad Capital, one of the new breed of cyber-financiers. "The most profound manifestation of this is eBay. If you can organize the Beanie Baby market you can certainly organize the private equity market."

Other firms launching similar Internet financing services are Atlanta-based Corpfin.com and Vcapital.com, a Web site launched by Batterson Venture Partners in Chicago.

Since launching its Web site in March, Offroad has completed two deals. That's a long way from its target of 75 deals annually. A $4.54 million deal for virtual tradeshow developer, Plexus Net Broadcasting, marked the firm's maiden voyage. On the heels of that deal, Offroad completed a placement for Quantum 3D, which develops simulation hardware for training purposes. While Offroad insists it does not have a preference for one industry sector, its deals so far are weighed in favor of Internet outfits.

"The profile for our prospective issuers is very much like the profile of prospective IPOs right now," Woodward said. "It doesn't have anything to do with our prejudices, it's just where capital is being placed right now."

While Offroad may not have a bias, it definitely does have criteria for potential customers seeking financing. The firm requires all prospective customers to have an exit strategy. Whether that involves an IPO or an acquisition, companies are expected to show revenues, contracts, banking relationships and at least one prior round of financing. Offroad clients are required to file quarterly and annual reports. Offroad insists that its reporting requirements will persuade qualified investors, who are individuals with a net worth in excess of $1 million, to invest in such early-stage companies.

Since it's inception, Offroad itself has raised an estimated $18 million. The firm has entered into strategic partnership agreements with well-heeled San Francisco-based industry powerhouses Charles Schwab and Robertson Stephens. Although specifics of the transactions were not disclosed, Woodward acknowledged that both firms will make equity contributions to the firm.

"We're trying to establish ourselves so that it makes more sense to cooperate with us than to compete with us," Woodward explained.

But, competition is not far off. An executive at J.P. Carey Enterprises in Atlanta founded Corpfin.com earlier this year. The firm will initially focus on public companies seeking to raise equity through diminutive secondary offerings, an area of financing that some believe has become neglected.