Wit targets Europe as investors wake up to Net

WIT Capital appeared on the Irish scene in late October when it entered into a $10 million (€9.85 million) joint venture agreement with Dublin-based Enba, a company aiming to provide Internet financial services across Europe. The entity is to be named Wit Capital Europe and will open for business early next year.

Wit Capital's international units, like those in the US, will use the Internet to offer individuals the opportunity to invest in initial public offerings (IPOs), other securities offerings, and venture capital funds. They also will provide advisory services to companies developing Internet businesses, including US-based companies seeking to create joint ventures in Europe.

"To know what will happen in Europe with regard to the Internet, we just need to look at what happened in the US in the last two years," said Mr Jonathan Cohen, Wit's director of research, at the Financial Technology Expo in New York. "Our goal is to take advantage of the structure Wit Capital has built. It was almost obvious that we should leverage our assets and base of expertise into the European market and into Asia."

The US certainly leads the way when it comes to Internet companies going public. In 1996, there were 32 Internet IPOs totalling $1.3 billion. This year, according to Thomson Financial Securities Data, 172 US Internet-related companies have gone public raising $13.8 billion. Contrast this with Europe where this year only 14 Internet companies have had initial public offerings, totalling $835.9 million.

A recent article in the American Banker newspaper predicted that if US trends were to be followed, there could be a surge of deals by European Internet companies. This means there will be greater competition among US investment banks each vying for the lucrative opportunity to underwrite these public offerings. The top three institutions that manage Internet IPOs in the US market are Goldman Sachs & Co., Credit Suisse First Boston and Morgan Stanley Dean Witter.

In the Internet realm, though, Wit Capital is the world's first online investment bank. It was founded in 1996, is 20 per cent owned by Goldman Sachs and it has a market capitalisation of $1.3 billion. It gives individual investors access to initial public and secondary offerings that previously were available only to institutions and wealthy individuals. It offers issuers investment banking, advisory services, and access to sources of capital through the distribution of deals over the Internet. Before Wit Capital went public in June, it had raised more than $75 million from private investors.

Now, it is trying to attract more retail investors to take part in initial public offerings. In order to help them do so, it is expanding its equity research offerings. The New York company recently tripled, to 60, its team of researchers which analyses technology and Internet stocks and posts its findings online.

Of the 20 largest publicly traded Internet stocks, 20 per cent are owned by individuals and 80 per cent by institutions. "Institutional investors own an inequitable portion of the shares," said Mr Cohen. "We think that should shift."

Wit makes 330 reports and 2,000 pages of information on 50 companies available free to Web users at www.witcapital.com. Offering free research helps Wit in Web branding, which, Mr Cohen estimated, is 10 times costlier now than four years ago. "Equity research has become the first stop for issuers, companies, and potential investors," Mr Cohen added.

"Four years ago you needed to spend $10 million to become a brand name on the Internet. Now it costs $100 million to drive traffic," he said. "More companies need to raise more money in a relevant way." Mr Cohen joined Wit in February from Merrill Lynch & Co., where he was managing director and head of Internet and PC software research.

Last month, in a deal valued at $320 million, Wit acquired SoundView Technology Group, a Stamford, Connecticut investment banking firm. The companies had combined revenues of about $125 million through the third quarter and have led or comanaged about 75 deals this year.

Wit is also exploring opportunities in Asia. In August it established Wit Capital Japan as a joint venture with Mitsubishi Corp and Trans Cosmos Inc.

But Wit is no longer alone. On November 15th, Charles Schwab, TD Waterhouse Group, and Ameritrade Holdings, together with three venture capital companies announced that by next year they would form an online investment bank targeting technology and Internet-related companies.

The investment bank, to be created in conjunction with Kleiner Perkins Caufield & Byers, Trident Capital and Benchmark Capital, would have the ability to distribute IPO shares to 4.5 million retail customers, or 50 per cent of all online investors in the US.