"Everybody involved knew deep down inside that valuations had gotten unrealistically high," said Barry Hall, chief financial officer with Styleclick.com Inc. "It was only a matter of time before there would be a correction, but most people were caught off guard by how quickly and how soon it happened."

Styleclick, which provides merchandising services for online retailers, was among the firms that agreed to be swallowed up before the market soured. It initially starting looking for a willing suitor last fall, upon concluding that hard times lay ahead for many e-tailers. Late last year, it agreed to merge with the Internet Shopping Network, a subsidiary of USA Networks Inc. That deal has not yet closed, but it is expected to soon.

Meanwhile, a number of other local companies that didn't get swallowed by a bigger fish when their value was peaking, now find themselves worth a fraction of what their valuation was a few months back. Consequently, their executives look like they might have missed the boat.

For example, shares of Santa Monica-based eToys Inc. are now going for about $6 each, compared to more than $80 last October. Likewise, Stamps.com, also based in Santa Monica, saw its market value evaporate as its share price plummeted from $98 in November to a little over $9 currently.

However, it might be too harsh to conclude that eToys' chairman and chief executive Toby Lenk and Stamps.com's chairman and CEO John Payne blew it, while Bohnett and others timed it perfectly.

"Not everybody had the opportunity to sell," said de Werd. "The ones who did well sold their company to a bigger player, not their shares on the open market. It would have been viewed very negatively by the Street if the chief executive of a new company starts to liquidate his own holdings."

And even if they had wanted to cash out, many start-up company executives are prohibited from doing so by "lock-up provisions" that restrict when and how many of their shares they can sell.

Attracting a suitor

In the cases of eToys and Stamps.com, the buyout offers they could not refuse never materialized when their valuations where peaking. If such an offer had surfaced, shareholders probably would have jumped at it.

For the most part, those companies that made deals leaving founders and executives wealthy tended to be started ahead of the pack and built to the point where they were ready to be taken over as the market hit its peak.

"(The companies bought out at the peak) definitely had the benefit of being the first mover," said Stan Farrar, a partner with the law firm of Sullivan & Cromwell. "They had a buzz about them that they're going to be the next Microsoft, which made them a lot more sexy than the follow-up companies."

Indeed, EarthLink, GeoCities and iMall were all started in 1994, when the Internet was just taking off and quite some time before the proliferation of me-too e-tailers.

But it's not only the entrepreneurs who established their companies first who struck it rich. A number of long-established investors also benefited from their ability to recognize opportunities ahead of the pack.

These investors include venture capitalists such as Brad Jones at Redpoint Ventures, angel investors such as Eli Broad, and entrepreneurial investors such as Gary Winnick and his partners at Pacific Capital Group.


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