Two Investment Banking Veterans Dive Into New Ventures
Two of the most successful veterans of California’s investment banking community--Thomas Weisel and Bill Hambrecht--are entrepreneurs again, and they’re shaking up the marketplace with their new ventures.
Both men, Weisel, 57, and Hambrecht, 63, spent decades in San Francisco growing two of California’s highest-profile regional investment banks, Montgomery Securities and Hambrecht & Quist. Both saw their firms and their fortunes mushroom by financing the boom in Silicon Valley’s technology industry along with other fast-growing businesses, such as biotech.
But in the last year, by coincidence, both men have opted to strike out again on their own, with Hambrecht founding W.R. Hambrecht & Co. and Weisel forming Thomas Weisel Partners.
“It’s a very positive trend. We want to see increased competition--that’s one of the things that’s been distressing about all these commercial banks buying regional [investment banking] firms,” said Samuel Hayes, professor of investment banking at Harvard University. “These boutique firms offer credible alternatives, especially for smaller, fast-growing businesses in the regions they are located. It means increased financing activity that creates new economic growth.”
Weisel started Thomas Weisel Partners in October, just weeks after leaving the firm he founded almost 30 years ago. He sold Montgomery to Charlotte, N.C.-based NationsBank for $1.2 billion in 1997, but it wasn’t until last year that control conflicts began heating up between Weisel and the more conservative commercial bankers at NationsBank, which is now BankAmerica.
Weisel resigned, blaming BofA executives for breaking a promise to let the NationsBanc Montgomery Securities unit manage underwriting and research for high-yield bonds. Several other top executives soon defected. Now, more than 100 former NationsBanc Montgomery employees have joined their old boss, Weisel said. Increasingly alarmed, NationsBanc Montgomery said last week that it was suing four of the defectors, claiming they had violated confidentiality pacts and misappropriated information.
Amanda Duckworth, a spokeswoman for Weisel Partners, said those employees will “vigorously defend” themselves. Weisel called the suits “frivolous” and said that when he was Montgomery’s chief, “people left and they took the tools of the trade with them.”
Weisel said he hopes to build a company not as dependent on public equity offerings as his old firm, and will place more emphasis on mergers and acquisitions as well as the firm’s private equity fund, which has raised about $400 million so far.
In a signal that the firm plans to be a high-profile M&A; player, Weisel’s firm recently advised Santa Monica-based GeoCities on its $4.7-billion merger deal with Yahoo. Still, Weisel said the firm isn’t ignoring the equity arena: It has a backlog of 24 such deals, including 16 initial public offerings.
“I love this. This passion is still there for me to work with these young entrepreneurial companies,” said Weisel, chairman and CEO of the firm, which is based in San Francisco and has offices in New York, Boston and London. “We always looked at ourselves as entrepreneurs--even when we had a billion-dollar company.”
Some say Weisel is out for revenge, trying to build his venture into a powerhouse to rival his old firm, now controlled by BofA CEO Hugh McColl.
With regard to competitors like BofA, Weisel says simply that investment banking and commercial banking aren’t always a good mix.
“This need to integrate, rather than keep separate--inevitably there is a war over the client between the investment banker and the commercial banker,” Weisel said. “That’s the reason we have been able to attract such quality people from all these firms. What I didn’t expect was how unhappy people were in all these other shops,” he added, referring to employees at investment banks bought by commercial banks.
Weisel said Southern California is a key part of his growth strategy and that on any given day he has half a dozen bankers in the region. He said he is considering opening a Los Angeles office.
Whereas Weisel was unhappy with the world of corporate politics at a banking conglomerate, Bill Hambrecht says he was motivated by opportunities he saw to change the costly and cliquish initial public offering process.
Hambrecht started his new firm in early-1998 after leaving Hambrecht & Quist, a firm known for financing such tech giants as Apple Computer. He co-founded H&Q; in 1968 with George Quist, and it is one of the few regional firms that have remained independent (and now is publicly traded).
The most innovative feature of Hambrecht’s new venture, started with $10 million of his own capital, is its electronic underwriting service--OpenIPO--which allows companies to go public by selling shares via the Internet through an auction process. The plan is to provide “universal access” to IPOs and offer companies going public lower costs, better stock valuations and less volatility in their shares.
The new system is designed to provide better allocation of IPOs, with the goal of placing more shares in the hands of long-term individual investors. Because it is done as an auction, shares aren’t set aside for “favored” customers such as large institutions--which are more likely to “flip,” or sell, stock for a quick profit. Hambrecht also hopes to offer lower fees, including underwriting charges of 4% to 5% of the sum raised instead of the typical 7%.
The first OpenIPO deal is for Ravenswood Winery, a Sonoma County winemaker known for its merlots and zinfandels. It plans to raise about $11.2 million by selling a 22% stake to investors. Ravenswood’s filing with the Securities and Exchange Commission said it hopes to sell 1 million shares for $10.50 to $13.50 each.
Online bidding will continue through at least March 22, Hambrecht said. More information is available at the firm’s Web site, https://www.openipo.com.
Times wire services were used in compiling this report.
Debora Vrana covers investment banking and the securities industry for The Times. She can be reached by e-mail at debora.vrana@latimes.com.
