SAN FRANCISCO (04/24/2000) - Idealab, the Pasadena, California-based venture capital firm founded by Bill Gross, filed for its initial public offering Thursday afternoon. Many expecting the move - but what was unexpected was a surprise on the board of directors: General Electric Co. Chairman and CEO Jack Welch. Idealab plans to raise $300 million in the initial public offering, using the proceeds to finance and operate more businesses and for general corporate purposes, according to a filing with the Securities and Exchange Commission. The company will use the ticker ILAB. Goldman Sachs, Donaldson Lufkin & Jenrette, Merrill Lynch, Robertson Stephens and Thomas Weisel Partners will be the underwriters of the deal.
The prospectus says Welch has served as a director of Idealab since March 2000.
Since 1981, he has served as the chairman and chief executive officer of GE, becoming one of the most respected chief executives in the world. According to the filing, CEO Bill Gross' stake in Idealab before an IPO is 41.58 percent or 390,140,900 shares, which seemingly assures him instant billionaire status the day Idealab hits the market. The cash will come in handy because Gross has taken out about $30 million in loans from the company in the past year, according to the filing.
Also, Idealab revealed that it is taking steps to avoid scrutiny under the Investment Act of 1940, which "requires registration for companies that are engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities." Usually, mutual funds are classified in this category, but the jump in Net valuations and the fact that businesses that invest in Net companies are now going public has made this a problem for a few firms. Both Internet Capital Group and CMGI have had to wrestle with the SEC over this issue, as well.
In the SEC's eyes, a company is an investment company if it owns securities with a value exceeding 40 percent of the value of its total assets. A company like Idealab is safe from the Investment Act if it owns more than 50 percent of the company in question. Technically, it is then the controlling shareholder.
In its S-1, Idealab states that as of Jan. 28, 2000, more than 40 percent of the value of its assets were securities issued by companies that are not majority-owned subsidiaries. The firm filed an application with SEC requesting a permanent order declaring that it is in a business other than that of investing, reinvesting, owning, holding or trading in securities. On March 28, the SEC granted a temporary order exempting Idealab from all provisions of the Investment Act for a 120-day period that ends on July 26 while it considers the request for a permanent order.