E-Mailbag Monday: Palm IPO, Stamps.com and VCs/Angels
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What do you think of the upcoming Palm IPO?
Reply: I recently purchased the Palm 7, which connects me to the Net. I use it constantly. And I'm sure many more people will, too. I expect this IPO to do extremely well. Wireless appears to be a major, long-term trend and Palm will be a leader in the space. After all, AOL and Nokia are both investors of Palm and strategic partners.
Not only does Palm have strong sales, but also profits. In the first six months of 1999, the company had $22.5 million in profits and $435 million in revenues. This compares to $16.2 million in profits and $263 million in sales in the same period a year ago.
The lead underwriter is Goldman Sachs. Morgan Stanley is also part of the underwriting team. Palm plans to issue 23 million shares between the price range of $14-$16.
I know you have recommended Stamps.com in the past. The stock has taken a hit, just like many others. Are you still bullish on the company?
Reply: In the Net industry, it is difficult to find barriers to entry. As for Stamps.com (STMP), the company was the first to get approval from the US Postal Office to sell stamps online. The regulatory process is long and tedious. The other company to get approval was E-Stamps.com.
I still think Stamps.com is the leader. But the market is nascent and so there will be volatility. Last week, for example, the company posted a bigger-than-expected loss for its latest quarter ($33.4 million). The main reason was the huge expenditures for marketing.
However, these expenses will eventually translate into a stronghold on the market. Moreover, the company has the luxury to afford the expenses. There is approximately $326 million in the bank.
Finally, keep in mind that the company is not merely about stamps. It is becoming a delivery company. Recently, Stamps.com purchased iShip.com, which allows for management of carriers (like FED EX and UPS) and the formation of Encryptix, which can print tickets and coupons online.
Angels vs VCs
What is the difference between an angel investor and a venture capitalist?
Reply: An angel investor is usually one person, who uses his or her own money to invest in the early stages of a company. This is called "seed financing." Typically, an angel investor will have had prior success and wants to help new companies become successful too. For the most part, angel investors are informal, although there are more angel groups forming. Usually, these groups meet every month and have companies make presentations.
A venture capitalist (VC) is a firm that invests other people's money. In most cases, the money is from major institutions (like pensions and insurance companies). A VC typically avoids seed financing and invests in later rounds. What's more, they invest large amounts of money -- say $1 million to $10 million (or even more). An angel investor, on the other hand, will invest between $25,000 to $500,000.