E-Mailbag Monday: Palm IPO, Stamps.com and VCs/Angels

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.

Stamps.com: Will Deliver

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.

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