Idealab! Hatchling Comes Home to Roost
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Idealab!'s founder Bill Gross is a visionary. He's also a dynamite businessman. So on the heels of Estee Lauder's (EL) land grab of beauty e-tailer gloss.com, Gross hatched plans to up his minority stake in his own beauty supplies incubatee, Eve.com, to a controlling interest. In a twist, he'll also take the reigns as chairman of Eve.
According to official statements, the move is intended to accelerate Eve's expansion into other product categories. Well I've got another guess. It goes something like this. There are two common exit strategies that exist for Net start-up companies. Take your show on the road and shake the public markets money tree for IPO dough. Or find a bigger fish to consummate an all-stock swap acquisition.
The latter of the two has become rampant because quite simply, it's getting tougher to hit the new issues market up for cash. Instead, rely on those bigger fish to wade through full disclosure, an IPO road-show, quarterly earnings reports, and impatient investors. Getting acquired is easily the exit strategy of choice for most Net newcomers.
CMGI (CMGI) is one Internet incubator that wisely uses its zaibatsu family to take advantage of the most lucrative exit strategy. Bound to have a number of struggling companies in its vast network, CMGI uses its portfolio thoroughbreds to acquire its weaker start-ups.
In this case, Bill Gross sees an opportunity to bring his 1998 investment in Eve.com to fruition. There's little question Eve.com doesn't have a warm welcome waiting for it in the public markets. Investors have openly flogged e-tailers in the Nasdaq market square for nearly a year now.
Now's the time to strike while the iron's hot. With a speedy makeover, Bill Gross can turn Eve.com into an attractive take-over target and marry off one of his longstanding hatchlings to a handsome suitor. But why all the fuss? Because the days of minting money from nearly any bright idea are a distant memory.
Keep in mind that Gross single-handedly started this Internet incubator craze. And few me-too competitors had the Midas touch that he's had. But through no fault of his own, the bulletproof idealab! portfolio has fallen on lean times.
Launched with tremendous bells and whistles, Etoys (ETYS) soared 283% on its first day of trade last May, fortunate to have been smack dab in the middle of the greatest Web boom the market has ever seen. Following eToys' heady IPO performance, idealab! released Goto.com (GOTO) to the public in June.
The pay-per-view search engine reached an enviable high of $114 per share
six months after its offering, despite a sluggish start. NetZero (NZRO)