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Looking for the Next Amazon.Com?
Let These Companies Do the Looking For You

By David Armstrong   Fox Market Wire
Got a great idea for a Web business, but don't know how to get started?

A host of companies are willing to help. They'll give you some cash, guidance and maybe even a place to plug in your computer, get a fax and use the copy machine. What they want in return is to own a little bit of whatever you create.

As the wave of high-tech success stories continues, these companies are flourishing, and investors are watching closely. While some are "incubators," providing warm, safe homes to nascent Internet start-ups, others simply are "seeding" companies that offer early financing in the hopes of receiving future returns. Regardless, these businesses are thriving and are promising to be the next big ticket on Wall Street.

CMGI, Inc., and Internet Capital Group, Inc., have both seen their valuations explode since going public. Meanwhile, Divine Interventures, Inc., and Garage.com this week released information regarding their own Initial Public Offerings, and observers say other incubators, such as Idealab! are bound to follow.

 
'The trick will be rather in the long run, when everything isn't golden, can they sustain the success record'
 

The appeal of these companies is their niche to find the most promising ideas and help them flourish into the next Amazon.com or America Online. For investors, it's like the shotgun approach. If one hits big, you don't care about the 99 that fail. That's a comforting idea in flush times. Observers warn, however, that when the music stops, the rules require that someone be left standing without a chair.

"It is definitely shifting the risk away from private investment and into the public sector," said Jesse Reyes, managing director for Venture Economics, a research firm that tracks venture capital. "There are a lot of people out there who think they are great venture capitalists when times are good. The issue is that venture capital for masses is a risky proposition."

But flush times is one reason the stock valuations of CMGI, Inc., and Capital Internet Group have exploded in market capitalization since going public.

Internet Capital Group, Inc., which has early stakes in about 40 different Internet companies, saw its stock leap from an offering price of $12 back in August to close at close to $120 Wednesday.

CMGI, Inc., has prominent investments in Internet companies large and small. It nurtures new start-ups though its @Ventures subsidiary, and it owns substantial stakes in Lycos, Furniture.com, and Vicinity. The company also owns some 80 percent of Internet search engine AltaVista. The company's stock has been trading close to its 52 week high at $112 a share.

That is good news to divineInterventures, Inc. The Chicago-based operation this week announced the terms of its public offering, stating it plans to raise some $321.5 million by trading 50 million shares on the Nasdaq market at $6 to $8 a share.

Like all incubators, divineInterventures, Inc., provides its chosen "partners" with early seed money, consultant services and, quite often, a cushy place to plug in the computer and call home.

 
Garage.com specializes in getting companies financing of anywhere from $500,000 to $1.5 million
 

In its filings with the SEC, divineInterventures, Inc., says it will usually have about a 25 percent stake in the companies it partners with, though currently its stakes range from the miniscule to over 80 percent in about 40 different business-to-business ventures, including Commerx Inc., LiveOnTheNet.com, Inc., Sequoia Software Corp., and Whiplash Inc.

Garage.com, which announced its intention to go public this week, is not an incubator in the technical sense of the word. It does not provide office space, phone lines or fax machines to spunky entrepreneurs in need of a physical home. Instead, the company promises to match investors with deep pockets with those who have good ideas. In doing so, Garage.com hopes to get a little action for itself.

Garage.com claims to have last year helped some 40 companies, which raised a total of over $100 million in capital.

The company filed with the SEC to issue $68.4 million worth of common stock on the Nasdaq market. The number of shares and the offering price have not yet been announced for the deal, which is being underwritten by Goldman Sachs.

In an unusual note for IPOs these days, Garage.com reports that it actually made a profit in 1999, when it posted a net income of $700,000 on revenue of $5.9 million. But, they say that won't last as they seek to grow the company.

In Garage.com's model, entrepreneurs submit ideas to Garage.com over the company's Web site, and those ideas are evaluated by the Garage.com staff. The ones that make the cut are presented on line for Web-surfing venture capitalists to contemplate. Garage.com specializes in getting companies financing of anywhere from $500,000 to $1.5 million.

One reason investors seem to have faith in these incubators is that they usually are founded by industry insiders, many of whom sat in the entrepreneurs seat themselves and scored big.

"The key here is credibility," said Jeffrey Hirschkorn of IPO.com. "Most are controlled by former wizards, people who have been on the street. They provide guidance."

For example, divineInterventures, Inc., is headed by Andrew Filipowski, who sold his first venture, Platinum Technology, to Computer Associates for $3.5 billion. Garage.com is the brainchild of former Apple executive Guy Kawasaki.

And they keep coming. Former Microsoft guru Paul Allen created Vulcan Ventures, while Bill Gross, the founder of GoTo.com, eToys and CarsDirect.com, is the brains behind Idealab!.

But for those who still believe in the ups and downs of the business cycle, even the best coach in the league won't guarantee consistent home runs.

"The trick will be rather in the long run, when everything isn't golden, can they sustain the success record," Reyes said.


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