Dreaming Big In A Period of Caution
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Thanks to last month's dual corrections in the Internet stock market and the recent trend toward less spectacular 'Net IPO debuts, the common wisdom these days is that investors are no longer willing to blindly hitch their wagon to any company sporting an "e-" prefix or ".com" suffix.
This latest bout of alleged sobriety among cyber-investors, however, has failed to dissuade several companies with short track records and minimal revenues from pursuing bold plans to raise millions through a public offering of stock.
Two of the most ambitious recent bids come from E2Enet.com and Internet Capital Group (ICG), each of which would like to become, in their own fashion, the next CMGI.
While its current roster of portfolio companies include an online auction network, a gift-giving e-commerce site and an urban online entertainment network, E2Enet.com, as the name implies, really wants to fund start-ups engaged in business-to-business e-commerce. For its money and advice, E2Enet.com will grab at least 25% of a company and a board seat.
That makes it one of the largest Internet offerings of the spring, exceeded only by Rhythms NetConnections, which raised $197 million when it went public on April 27, and ICG, which filed on May 11 to raise $211 million.
While ambition is admirable, E2Enet.com appears to be heading for the public trough exceedingly early. Here's how the company, which has all of nine employees, sums up the situation in its S-1 documents: "Our strategy may not be successful because we have no track record."
Not exactly a siren song for Internet investors purportedly in the cool grip of rationality and reason, but an accurate statement nonetheless, for E2Enet.com began operations only last September and has zero revenues to date. (In fact, none of the four companies it has a stake in are open for business yet, so they too show no income.)
What E2Enet.com really wants is to create a venture capital fund using stock proceeds, rather than starting a venture fund in the traditional way by soliciting large institutional investors such as college and retirement funds.
If you're E2Enet.com, that's a reasonable strategy. If you're an investor, on the other hand, you're being asked to speculate based on no real data. A tough sell, especially when you can invest in dozens of other Internet companies that, if not yet making a profit, have proven they can execute on a business plan (if not turn a profit).
BT Alex. Brown is the sole underwriter for E2Enet.com's IPO.
At least Internet Capital Group has some revenue -- $3.1 million in 1998, nearly 300% better than the previous year's $792,000. Unfortunately, that money comes primarily from ICG's shares in VerticalNet, despite its having holdings in nearly 30 companies. Among those in ICG's portfolio are Bidcom, Deja.com and Arbinet.
Venture capital firms often espouse the virtues of synergy among their portfolio companies - Kleiner Perkins Caufield & Byers refers to it as "keiretsu" - but ICG appears to aspire to something more lasting and complex. The company's goal is to integrate its portfolio companies - or "partners" - into a collaborative network of business-to-business product and services vendors.
That's a tough trick to pull off, because in the gold rush atmosphere of the Internet, companies are averse to being locked into long-term relationships. Flexibility rules on the 'Net, and there's no reason to assume that a company like BidCom, which does construction project planning, will want to use transaction processing software supplied by ClearCommerce, another ICG company, if it can get a better deal elsewhere.
ICG plans to trade on Nasdaq under the symbol ICGE. Lead underwriter isMerrill Lynch.
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