In light of the dot-com meltdown, the local Internet entrepreneurs who cashed out last year are looking like financial geniuses.
By contrast, those who for whatever reason held on to their companies and their shares suddenly seem a lot less savvy than they did in 1999.
Is the difference between the two groups a matter of sheer brilliance or just dumb luck being at the right place at the right time to make a hefty profit? It's most likely a combination of both.
"The most sophisticated investors regardless of whether they are entrepreneurs or not will recognize long-term trends well before the rest of the market," said Jourdi de Werd, managing director with Greif & Co., an investment bank based in Los Angeles. "They will see changes in the industry two or three years ahead and decide whether they will make the additional investments and adapt to these changes, or instead exit their investments."
As the Nasdaq was breaking one record after another in 1999 and the valuations of dot-coms skyrocketed, a number of L.A.-based Internet businesses were scooped up for astronomical prices.
In February of 1999, Marina del Rey-based GeoCities was bought by Yahoo Inc. for $5 billion in stock. Later that year, iMall Inc. in Santa Monica was acquired by Exite@Home Corp. for $415 million.
Across town, Pasadena-based EarthLink Network Inc. merged with Atlanta-based MindSpring Enterprises Inc., creating the second largest Internet service provider in the country.
These deals made very rich men out of the companies' founders and executives, such as GeoCities' David Bohnett, who netted about $367 million in Yahoo shares through the deal. The moves also made Bohnett, along with iMall's Richard Rosenblatt and EarthLink's Sky Dayton seem like visionary entrepreneurs who knew the time was right to cash in their chips.
"You have two types of people here," said Andrew Kane, managing partner with Big Five accounting firm Arthur Andersen. "You've got people who were in their 20s and were in the right place at the right time with a terrific idea. Then you also have investors who have an amazing track record of timing a market and going in and out at the right moment in a variety of industries."
Long ride down
It's likely that the big winners saw where the market was going and that the opportunity to sell at such high valuations would not be around forever.
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