ENTREPRENEURS AND ISSUERS RAISE CAPITAL ON THE INTERNET
By Eric Wedbush
The financial services industry has gone through a number of monumental changes in the last 30 years, starting with the emergence of the commercial paper bond market in the late 1960s, followed by the securitizations of home mortgages and the elimination of fixed commissions for brokers in the 1970s, to the rise of the LBO and junk bond market of the 1980s.
The 1990s has been the decade that has given rise to the democratization of capital for the entrepreneur and issuer. The revolutionary way companies are now raising capital through initial public offerings on the internet is a watershed period for the financial services industry. In fact, small to medium-sized companies in Los Angeles and in the worldwide market can now have easy access to the capital markets at the click of a mouse.
The nature on how we trade and sell on the stock exchanges is also changing. A new paradigm has been created with the rise of ECNs or electronic communications networks. Up until recently, ECNs did not even exit, today nine ECNs are estimated to control nearly 30 percent of Nasdaq volume. The online investing craze is also altering the landscape. It was also recently announced that the New York Stock Exchange and Nasdaq Stock Market may go public this year. All these technological advancements are benefiting companies that seek to raise capital; they are transforming the art of the underwriting deal.
Andy Grove, chairman of Intel Corporation and author of the best -selling book “Only the Paranoid Survive,” emphasized that businesses must be mindful of strategic inflection points that change the fundamentals of business. As we prepare to enter the 21st century, the financial services industry is in the forefront of implementing these changes in how we sell companies to the investing public.
For example, up until the 1990s, it was much more difficult for entrepreneurs and issuers to take a company public, especially if that company was in the small-to-mid-cap range. The internet has changed this radically. Selling securities to investors has never been easier and less costly.
Today, in the marketplace, there are a number of financial online companies competing for the growing market for internet IPOs and secondary offerings. At Wedbush Morgan Securities, we became the first full-service brokerage to launch an IPO E Investment Bank website recently.
The response from the investment community has been great because it gives customers direct access to initial public offerings (IPOs) and secondary offerings. For close to 75 years Wedbush has been underwriting public and private deals and now with our website, we have a vehicle to help entrepreneurs and issuers raise capital more effectively and efficiently. We can also combine the IPO offering with our traditional brick-and mortar network of brokers in our 15 retail offices around the country.
On the E Investment Bank website, investors can place indications of interest to receive allocations of shares in offerings and can edit their selections online using the “E OrderBook” feature until the offering is priced and the shares are allocated. This avoids many of the allocations problems encountered by investors with other online sites, which rely mainly on e-mail expressions of interest.
The site offers investors free access to the firm & #353;s equity research reports that cover technology, financial services, consumer products, biomedical services and device sectors. There is also market and industry commentary from Wedbush research analysts who cover these industries.
Many of the financial online sites have a variety of requirements and limitations on the minimum amount of capital required on these sites, some as high as $100,000. Wedbush caters to a broad range of investors and only requires a $2,000 minimum to open an E Investment Bank account.
Since our IPO website launch last month, we have been involved in internet offerings where we were the lead underwriter or co-manager. We see many more companies in Southern California and the Western United States who can be taken public through our site. The entrepreneurs and issuers are reaping the rewards of raising capital in this manner, because it is opening up markets that were previously slow-moving and restricted for the small and microcap companies.
The financial services industry has entered a new era with the rise of internet underwriting, ECNs and the strong likelihood that we will enter into a 24-hour trading market worldwide in a few years. Entrepreneurs and issuers have unparalleled opportunities to be in the marketplace in this golden age of investment banking and we at Wedbush Morgan Securities are working to provide innovative, cutting-edge solutions for all of their capital needs.
Eric Wedbush is managing director of the E Investment Bank site (www.einvestmentbank.com) for Wedbush Morgan Securities.
