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Start-up Fever Should Drive Garage.com IPO

Last year witnessed the flourishing of a number of Internet "incubators" - private companies that provided funding, office space, advice and other resources for early-stage Net companies.

This year you can expect a number of these Net incubators to join later-stage venture capital companies such as CMGI and Internet Capital Group on the stock ticker.

The first incubator to offer shares also is among the best-known. Garage.com, a Palo Alto, Calif.-based company begun in 1997 by Apple executive Guy Kawasaki, filed plans with the SEC on Friday for an IPO designed to raise $68.4 million. The stock will trade under the Nasdaq symbol GRGE.

With all the elements necessary for a strong debut, Garage.com looms as another Internet IPO moonshot. Here's why:

  • The offering is being underwritten by A-list triumvirate Goldman Sachs, Credit Suisse First Boston and Robertson Stephens
  • The company has star quality in co-founders Kawasaki and Forbes publisher Rich Karlgaard
  • There is intense investor desire to "get in early" on Internet companies, which has proven to be a strategy for quickly amassing great (paper) wealth
  • Actual profits

On that last one, I'm hardly suggesting that profits are a requirement for Internet IPO success; recent history shows that nothing could be further from the truth. But tiny as it is, the $0.7 million in net profit that Garage.com realized on $5.9 million in revenue last year is an unexpected plus that should help boost shares, even though the company warns it expects to sustain significant losses as it invests in its business.

Garage.com isn't a seed-funding provider as much as it is a middleman for companies searching for capital. While the company provides start-ups with assistance in devising market strategies and finding employees, it also helps them land funding from other sources by publishing their business plans on the Garage.com site. In 1999, 28 Garage.com clients raised more than $90 million.

Revenues are derived through fees paid both by clients that receive funding through Garage.com as well as investors given access to a password-protected part of the company's site listing selected start-ups in searching for financial support. Garage.com also makes money on a conference series called "Bootcamp for Startups."

Finally, Garage.com's unique business model -- leveraging the power of the Internet for the benefit of both investors and cash-hungry start-ups -- should find a receptive audience among bullish Net investors. Barring a slump in the IPO market when it debuts, Garage.com's offering has the makings of a moonshot.



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