How About Ipos For The Masses?

INVESTMENT BANKER BILL HAMBRECHT'S old and new offices are two miles--and several worlds--apart. His former digs were in San Francisco's financial district, at Hambrecht & Quist, the investment bank known for taking companies like Apple and Genentech public. It does business the traditional way, passing out often bargain-priced stock in newly public companies to the foie-gras-and-caviar crowd. In contrast, his new venture, W.R. Hambrecht & Co., is in an old warehouse three blocks from a Hostess factory. It wants to level the playing field for initial public offerings by making such shares available to all--even the Twinkie crowd.

When your average investor hears about those hot technology IPOs that surge seconds after they start trading, he turns green with envy. That's because only the investment banks and brokerage houses that underwrite the deal, their best customers and other insiders get the stock at the initial-offering price. The masses buy at higher prices after the stock starts changing hands. With a stock like eBay, which soared from an offering price of $18 to a high of $54 on its first day of trading, the insiders stand to reap huge rewards; the hoi polloi just shoulder immense risks. With his new company, which formally launches this week, the 63-year-old Hambrecht will give individual investors a fair crack at IPOs. He'll distribute the shares of the high-tech companies he underwrites via a ""Dutch auction'' on the Web. ""The system,'' he says, ""has to get back to being basically fair.''

Hambrecht cofounded H&Q in 1968 to work the growing ranks of high-growth companies down in Silicon Valley. He left in '96 and started his retirement in Vail. But one week later, friends started getting his phone calls pitching the online IPO scheme. ""He stayed retired for about eight minutes,'' says Henry Bienen, president of Northwestern University.

Hambrecht seeded the firm with $10 million of his own money. On W.R. Hambrecht's Web site,, a company will post either the number of shares it wants to sell or the amount of money it wants to raise. Investors submit bids online: how many shares they want, and what price they are willing to pay. Specialized software then performs a reverse auction, working down to determine the price at which the company's request is satisfied, and all investors pay that price. (Hambrecht's fee: a traditional 3 percent.) The big advantage, Hambrecht says, is that ""nobody is going to look foolish. Nobody is going to pay more than the other guy.''

The real challenge will be to sign up much-coveted new tech companies as underwriting clients for the firm. Hambrecht's primary pitch is that their shares will fetch a higher price online than the artificially low one set by traditional underwriters. But if he's successful, rivals could simply copy the model. ""Everyone has a Web site,'' says Jim Feuille, head of investment banking at Volpe Brown Whelan. ""It certainly would be easy enough to do it.''

For small investors, it could be the dawn of a new, populist order. But be-ware: IPOs are still among the market's most unpredictable bets. Bill Hambrecht hasn't made them much less of a gamble. He's just reduced the ante.

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