E-Offering Says Everything's Fine - Really

SAN FRANCISCO (02/09/2000) - E-Offering, an online investment bank, has gone six months without a permanent chief executive, leading industry experts to wonder whether the one-year-old firm has lost its way.

This morning the San Francisco-based company sought to quell such concerns, announcing a $52 million round of financing, three prominent new directors and a new interim chief executive. As part of the investment reshuffling, one of the bank's founders, Frank Cutler, lost his seat on the Board.

While the business of Net investment banking started with much fanfare a couple of years ago, the three initial players - W.R. Hambrecht, Wit Capital and E-Offering - have had trouble living up to the expectations they initially set.

It has been difficult for them to get the lucrative assignments of being the lead managers on initial public offerings, and they have struggled to provide enough IPO shares to meet the appetite of their primary market: retail investors.

The challenge has become even greater in recent months, as ventures backed by the brokerage Charles Schwab and the investment bank Friedman Billings Ramsey have entered the field.

It remains to be seen whether any company can turn a substantial profit from this business, but E-Offering's latest move shows that some powerful investors continue to believe it can be done.

General Atlantic Partners, a venture capital firm in Greenwich, Conn., led the financing. The other new investors were Softbank Venture Capital, New Enterprise Associates, Battery Ventures and Crosspoint Venture Partners. The online brokerage E-Trade, which was one of the founding investors, also contributed to the round.

As part of the deal, Mark Dzialga, a partner at General Atlantic who had previously been a top technology investment banker at Goldman Sachs, will take a seat on E-Offering's board. He will be joined by two other new directors: Rex Golding, a Softbank Venture Capital managing director who had been co-head of Morgan Stanley Dean Witter's technology group; and Tom Bevilacqua, E-Trade Group's chief corporate development and strategic investment officer.

E-Offering also named as its interim chief executive and president Steve King, the VP and general manager of E-Trade's investment banking group. King takes over for Walter W. Cruttenden III, who also had been filling the job on an interim basis. (Cruttenden, a founding investor, remains on the board, as does Chairman Christos M. Cotsakos, E-Trade's CEO.) In a telephone interview, King was bullish about E-Offering's prospects. "We ramped up quickly, from zero to 150 employees, combining the best of Wall Street and Silicon Valley," he says. "And going forward, we expect to be increasing our team in all aspects of the business."

Still, an executive close to E-Offering who spoke on condition of anonymity says that King's appointment had been a fallback plan. The company had been seeking a big-name top executive, a rainmaker who could bring a Rolodex full of contacts. Wit Capital, for instance, has Bob Lessin, a former top banker at Morgan Stanley, and the new Schwab-backed bank has Scott Ryles, previously the co-head of Merrill Lynch's technology group.

Indeed, E-Offering did reach out to some big guns in the banking world.

Sandy Robertson, an early investor in E-Offering and the founder of the investment bank Robertson Stephens, had been touted as a likely candidate, but he chose to pursue other business opportunities.

E-Offering also spoke with other top Bay Area bankers, including Mike McAffery, Robertson Stephen's current chairman, and Kent Logan, the former investment banking chief at Montgomery Securities, now Bank of America Securities.

It's not easy for a startup to attract top banking talent, because the startup must compete against established banks in a tight labor market. In fact, two of E-Offering's top analysts, Gary Kraft and Andrea Williams, have left the firm; both are now working at Deutsche Banc Alex Brown.

E-Offering officials dismiss the departures as minor and insist that new analysts will be hired.

Also, King notes, the company will now begin a formal search for a permanent CEO, with the assistance of the search firm, the Whitney Group. While The Standard has listed the company's search for a CEO since the summer, E-Offering spokesman Rich Horn insists that such a search has not been occurring.

King says he plans to build upon E-Offering's successes, noting that it was part of underwriting syndicates in almost 150 deals. Yet he also appeared to be toning down some of the expectations that accompanied the firm's launch.

While E-Offering initially vowed to become a lead underwriter of IPOs, King was more circumspect.

"We see opportunities to be a significant co-manager," he says, adding that now is not the stage to be thinking of the lead.

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