EarlyBirdCapital Catches $11M Worm

Eager to compete with the likes of Wit Capital Corp. in the online IPO market, EarlyBirdCapital.com completed an initial $11 million equity offering to further develop its investment banking operations. And while management admits that the company’s early focus will be private equity, it shouldn’t be long before the EarlyBird crest is seen on the cover of IPO prospectuses.

“For the months of March, April and May we are going to see between three and six placements for early-stage technology companies,” said company founder Mark Nussbaum. “Come June and July we hope to be akin to Wit Capital, and invited to participate in select deals where we have relationships with the companies or the underwriters.”

The New York-based firm tapped a trio of investors to fund its operations while it continues to develop, including New York-based Wheatley Partners, Bulldog Capital of Tampa, Fla., and Netinvest (Overseas) Ltd., based in Franenfeld, Switzerland. Research Partners International Inc. holds a majority interest in EarlyBirdCapital.

The company’s decision to look across the pond for a portion of the deal is entirely strategic. With its focus on telecommunications and information technology, EarlyBird believes the Nordic region is just starting to “percolate” with entrepreneurial activity, due in part to the presence of Finnish telecom giant Nokia Corp.

Nussbaum is also flustered by recent valuation trends besetting private equity investors. While EarlyBird depends on a robust entrepreneurial market to insure a healthy roster of deals for its investors, management is frustrated with inflated pre-money valuations.

“Before the $13 billion that went flooding into these companies, you used to be able to negotiate very attractive pre-money valuations,” Nussbaum said. “Investors are entitled to get in at an entry level valuation point that’s reasonable. But in the hotbeds (Silicon Valley and Alley), valuations are getting a little too frothy. We are hoping to compete in areas where money isn’t quite as focused.”

In the future, EarlyBird expects to receive IPO allocations in the neighborhood of 100,000 shares for distribution to its own investing patrons. But as the company waits for its IPO banking operations to develop, the majority of its revenue will be derived from commissions on private equity transactions.

EarlyBird estimates it will complete approximately 10 placements over the next 12 months, which will average approximately $5 million each. Believing it can match the industry’s 7% commission rate, the company projects $3.5 million in revenue for the year. In addition to cash commissions, the company has high hopes for alternative payment methods including equity warrants. – R.L.W.


Completed Venture-Backed IPOs

Date Offer2/16

Issuer (symbol) Location Priced Price

Onvia.com (ONVI) Seattle, WA 2/29/00 $21.00

E-commerce for small businesses

net.Genesis (NTGX) Cambridge, MA 2/29/00 18.00

Internet software developer

Niku (NIKU) Redwood City, CA 2/28/00 24.00

Internet software developer

Avenue A (AVEA) Seattle, WA 2/28/00 24.00

Media buying services

Digitalthink (DTHK) San Francisco, CA 2/24/00 14.00

Online learning solutions

Nextel Partners (NXTP) Kirkland, WA 2/22/00 20.00

Digital Wireless Communications

Apropos Technology (APRS) Oakbrook Terrace, IL 2/17/00 22.00

Provides call center services

Eloquent (ELOQ) San Mateo, CA 2/16/00 16.00

Develop authoring software

VarsityBooks.com (VSTY) Washington, DC 2/15/00 10.00

Online textbook retail

Cont’d

2/16 Lead VC Company Lead

close Backer Counsel Underwriter

$61.50 Mohr Venture Law CSFB

Davidow

Ventures

55.125 OneLiberty Foley Hoag Chase H&Q

Ventures /DBAB

101.938 Vector Fenwick & West GS

Capital II

69.00 Oak Perkins Cole MSDW

Investment

Partners

45.50 TI Ventures Wilson Sonsini CSFB

34.125 Madison Summit Law GS

Dearborn

Capital Partners

54.50 ARCH McDermott Will Chase H&Q

Ventrure Fund

34.50 Onset Cooley Godward US Piper

Ventures

9.00 Mayfield Fund Shaw Pittman CSFB

Source: Thomson Financial Securities Data /Securities and Exchange Commission filings