From: Antoun Nabhan (anabhan@law.harvard.edu)
Date: Thu Apr 20 2000 - 21:00:16 PDT
Actually, the big shocker is that Idealab is going out in this market at
all. CMGI and ICG are trading at something like 30% of their 52-week highs,
giving them extremely nasty betas. Divine Interventures, a Chicago
incubator built around the charisma of Flip Filipowski much as Idealab! is
Bill Gross' cult of personality, was on track to price two weeks ago and is
now postponing their IPO indefinitely.
Ticketmaster and eMachines are probably solid cash cows for a 3-5 year
timeframe. NetZero apparently has a big user base, which may still mean
something.
There's something strange about the concept of taking things like Idealab!
and Divine public in the first place. All you're investing in is the option
on the future cash flows of the portfolio companies, which - and everyone
has said this already - has a VC, not public-market, level of risk to begin
with, which should actually drive the stock price *down* to reflect the
risk premium. But what I haven't seen anyone question is that this is also
the revenue stream that those companies are hoping to get investors to buy
when they price their own IPOs. So who gets the upside? The Idealab!
investors or the investors in the porfolio companies? And how do you know
there's an upside at all when the team that's choosing the portfolio is
unproven? Clearly, it's good to be Bill Gross - you get liquidity anywhere
from months to years earlier than you earned it.
If there's anyone out there at Goldman Sachs who can explain to me the case
for this IPO based on the fundamentals, I'd love to hear it.
That '40 Investment Company Act issue is non-trivial, too. Some of the law
firms, etc. that take equity are running into the same problem, but they're
not trying to float public shares in themselves so it's not so obviously
outside the guidelines of the '40 Act.
My .02.
-Antoun
At 07:43 PM 4/20/00 -0700, you wrote:
>Big shocker on Idealab's S-1: Jack Welch is on their Board of Directors.
>Dammmmmmm...
> http://www.thestandard.com/article/display/0,1151,14360,00.html
>
>Man, Bill Gross will be worth $12 billion after this IPO if ILAB hits
>30. That is, by any definition of the word, ludicrous.
>
>Look at the list of "companies" at the end of this post. Maybe one
>useful company out of the bunch (PayMyBills), the rest of it crap that
>fleeces the poor individual investor (How many individuals lost money
>"investing" in eToys? It's just so wrong...)
>
>Unrelated bonus question for anyone who follows the equity markets: AT&T
>is spinning off AT&T Wireless (ticker symbol: AWE, I kid you not) next
>week in the biggest IPO ever ($11 billion to be raised, which makes
>360Networks' junk-bond-n-stock float of $1.4 billion this week seem like
>pennies). Can anyone tell me what differentiates AWE from the wireless
>company AT&T *bought* in 1994?
>
> > Idealab Files for IPO, With Jack Welch on Board
> > April 20, 2000, 05:32 PM PST
> >
> > The VC firm says GE's chairman and CEO has served as a company director
> > since March.
> >
> > By Kevin Kelleher and Jim Evans
> >
> > Idealab, the Pasadena, Calif.-based venture capital firm founded
> > by Bill Gross, filed for its initial public offering Thursday afternoon.
> >
> > Many expected the move -- but there was a surprise on the board of
> > directors: General Electric (GE) Chairman and CEO Jack Welch.
> > Idealab plans to raise $300 million in the initial public offering and
> > it would use the proceeds to finance and operate more businesses and for
> > general corporate purposes, according to a filing with the Securities
> > and Exchange Commission. The company will use the ticker ILAB. Goldman
> > Sachs, Donaldson (DLJ) Lufkin & Jenrette, Merrill Lynch (MER) ,
> > Robertson Stephens and Thomas Weisel Partners will be the underwriters
> > of the deal.
> >
> > The prospectus says Welch has served as a director of Idealab since
> > March 2000. Since 1981, he has held the role of chairman and chief
> > executive officer of GE, becoming one of the most respected chief
> > executives in the world.
> >
> > According to the filing, CEO Bill Gross' stake in Idealab before an IPO
> > is 41.58 percent, or 390,140,900 shares, which seemingly assures him
> > instant billionaire status the day Idealab hits the market. The cash
> > will come in handy because Gross has taken out about $30 million in
> > loans from the company in the past year, according to the filing.
> >
> > Also, Idealab revealed that it is taking steps to avoid scrutiny under
> > the Investment Act of 1940, which "requires registration for companies
> > that are engaged primarily in the business of investing, reinvesting,
> > owning, holding or trading in securities." Usually, mutual funds are
> > classified in this category, but the jump in Net valuations and the fact
> > that businesses that invest in Net companies are now going public has
> > made this a problem for a few firms. Both Internet Capital Group and
> > CMGI have had to wrestle with the SEC over this issue, as well.
> >
> > In the SEC's eyes, a company is an investment company if it owns
> > securities with a value exceeding 40 percent of the value of its total
> > assets. A company like Idealab is safe from the Investment Act if it
> > owns more than 50 percent of the company in question. Technically, it is
> > then the controlling shareholder.
> >
> > In its S-1, Idealab states that as of Jan. 28, 2000, more than 40
> > percent of the value of its assets were securities issued by companies
> > that are not majority-owned subsidiaries. The firm filed an application
> > with SEC requesting a permanent order declaring that it is in a business
> > other than that of investing, reinvesting, owning, holding or trading in
> > securities. On March 28, the SEC granted a temporary order that exempts
> > Idealab from all provisions of the Investment Act for a 120-day period
> > ending on July 26 while it considers the request for a permanent order.
> >
> > Idealab's Stake in Startups
> >
> > CarsDirect.com 44%
> > Cooking.com 6
> > EToys 12
> > Eve.com 17
> > FirstLook.com 44
> > FreeMusic.com 88
> > iExchange.com 44
> > Jackpot.com 81
> > jobs.com 2
> > MyHome.com 70
> > PETsMART.com 21
> > Swap.com 44
> > Ticketmaster 1
> > Tickets.com 5
> > Utility.com 34
> > WeddingChannel 7
> > z.com 51
> > Centra Software 1
> > dotTV 50
> > eMachines 10
> > EntryPoint 55
> > eVoice 31
> > GoTo.com 27
> > HomePage.com 56
> > Intranets.com 33
> > NetZero 5
> > OpenSales 46
> > PayMyBills.com 50
> > PeopleLink 11
> > Sameday.com 46
>
>----
>Adam@4K-Associates.com
>
>No one can say we don't do windows.
> -- Rohit Khare
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