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Wit Prepares to Take Wall Street

Ask the average person on the street what Wit Capital is, and they may guess that it's another way to measure cleverness of intellect.

Ask any experienced day trader or investment professional and, well, they've all heard of Wit Capital, the online brokerage and investment firm that filed last Thursday to sell $80 million of its own stock to the public.

In the short history of Internet investing, Wit Capital is a seminal player, a pioneer in offering online IPOs to regular folks who otherwise would be shut out of the process while the large investors grabbed all the favorably priced shares. Wit has participated in 41 IPOs since opening for business in September 1997, including EarthWeb, MarketWatch.com and Prodigy.

Wit's promise to investors is that IPO shares will be allocated on a "first come, first served" basis, an enticing proposition for smaller investors who previously have had their forlorn faces pressed up against the IPO store window in the first days of any hot public offering.

But there is considerable grumbling on Internet investment discussion boards that, rather than opening the doors for all, Wit leaves smaller investors waiting out in the cold while catering first to investors with large accounts - the same way it's always been done on Wall Street.

Specifically, the charge from some traders is that Wit ignores their e-mail indications of interest on new issues while making IPO shares available at offer price to the big players and even Wit employees. Once the VIPs are taken care of, these traders say, the smaller investors get table scraps, if they're lucky.

It's hard to tell whether these are the complaints of a small number of malcontents, or are reflective of widespread feelings of ill will among day traders toward Wit. After all, public forums can skew the overall picture, drawing as they do the disproportionate participation of cranks and soreheads.

And even if some stock traders do have legitimate grievances against Wit, other investors will care more about the prospective performance of the company's stock, which will trade on the Nasdaq board under the symbol "WITC". Underwriters are Bear Stearns, Wit and Thomas Weisel Partners.

On the plus side, Wit has name recognition in the investment community, an asset augmented immeasurably by the hiring of Wall Street heavyweights Robert Lessin as chairman and CEO and Jonathan Cohen as director of research. Lessin, former vice chairman at Salomon Smith Barney, and Cohen, who was Merrill Lynch's senior Internet analyst, give Wit credibility and star quality.

On the minus side, the company lost $8.8 million in 1998, its first full year of operations, against $2 million in revenues (Wit's accumulated debt is $13.6 million). Also, despite its status as one of the first companies to offer IPO shares online, Wit faces numerous high-profile competitors such as Charles Schwab, Fidelity and E*Trade.

Internet chatter about Wit's offering will intensify as the IPO nears, and should even eclipse online discussion about offerings from companies such as iVillage and eBay. But discourse dominated by personal horror stories and condemnations of Wit's allegedly unfair allocation practices could act as a drag on the IPO. It will be fascinating to see how the story unfolds.