Wit Capital Corp. (http://www.witcapital.com)-the world's first Web-based investment bank (see "New Issues, New Medium," June '97, RR)-opened for business in September, has participated in two IPOs, and is promising to soon originate some of its own deals.
For its first act, Wit allowed investors to open accounts with a minimum deposit of $1,000, download a red herring and put in orders to buy shares in IPO Radcom Ltd., an Israeli-based network test equipment manufacturer. The deal was underwritten by Unterberg Harris of New York City, with Wit as part of the syndicate. Wit's investors got their shares on a "first-come, first-serve" basis, says Wit founder Andrew Klein, "in sharp contrast to any other retail broker."
Klein, a former securities lawyer, has hired four investment bankers and plans to originate some deals as well as continue acting as a syndicate member.
The Radcom deal, priced at 91/2 a share, closed in September, and Wit has since participated in a second IPO for C.H. Robinson Worldwide Inc., a $1.6 billion Minnesota-based transportation services firm. That deal, underwritten by BT Alex Brown, came at 18 a share in October.
"The problem today is that invariably IPO shares wind up in the hands of the big brokers and are given as rewards to favored customers," Klein says. What will make his firm unique is its "fairer" method of distribution-those who pay first get the shares. Who you know doesn't count. He sees it as a democratization of the capital-raising business.
Meanwhile, Wit is in registration with its first "public venture capital" deal for the Sandbox Entertainment Corp. of Phoenix, an interactive game developer. Wit will be the lead underwriter on what is expected to be a $5 million offering of convertible preferred stock.
"What's novel about public venture capital is that it's a public offering of stock that won't trade immediately," Klein says. The public gets a chance to invest in developing and growth stage companies, and companies get the benefits of private investors. The stock in these offerings will be restricted for 12 to 24 months.
Klein expects that his public venture capital deals will average $5 million to $10 million in size. He says his firm can make money doing them because of the low-cost direct distribution. "We don't have retail brokers that have to be paid a significant piece of the gross spread," he says. It's also economic for issuers since everything else is done electronically-distribution of prospectuses, road shows, etc.
Within its first month, Wit had opened accounts for more than 1,000 investors, Klein says. Those investors now can trade listed and Nasdaq securities through the site, and the firm will soon be adding bonds, options and mutual funds. By year end, Wit also will be offering private placements to accredited investors. By early 1998, Wit plans on launching a "digital stock market" to trade listed and OTC issues-sans market makers. It will be, Klein says, just like Instinet, but for the masses.
But Klein, while a pioneer and threat to some Wall Street traditions, is not a complete renegade. Several months ago, Wit Capital popped up as the newest entry in the Securities Industry Association's membership directory.