Some E*Trade Customers
To Gain Access to Start-Ups
By REBECCA BUCKMAN
Staff Reporter of THE WALL STREET JOURNAL
First, online investors got a crack at hot initial public stock offerings.
Now,
a small number of wealthy customers at E*Trade Group could get their
hands on even riskier investments: early-stage companies in search of
venture capital.
E*Trade, of Menlo Park, Calif., said Monday that it had formed a
strategic alliance with Garage.com, a Palo Alto, Calif., company that uses
the Internet to connect qualified investors with fledgling start-up firms
in
need of funding.
Though only very sophisticated, wealthy
investors would likely be eligible to participate,
said Tom Bevilacqua, E*Trade's executive
vice president for corporate development and strategic investments,
E*Trade is "actively working to develop programs whereby our customers
would have access to [Garage.com's] originated deals."
So far this year, Garage.com says it has helped 20 start-ups raise about
$60 million from venture-capital outfits, "angel" investors and corporations.
Garage.com screens business plans and posts information about the best
ones on its Web site (www.garage.com), allowing investors -- who have
paid a fee to participate -- to get in on the action.
Mr. Bevilacqua acknowledged that the vast majority of E*Trade investors
wouldn't qualify to participate, but said "more than a couple of hundred"
could be eligible. And "from a regulatory standpoint, we've got some work
to do," since securities regulators have strict rules about who can invest
in
such speculative deals, he added.
By sitting on Garage.com's board and becoming involved in its operations,
E*Trade will also get an early look at new companies using cutting-edge
technology that E*Trade might use in its own business, Mr. Bevilacqua
said.
E*Trade led a $12 million round of financing for Garage.com, contributing
about half the funding, said Mr. Bevilacqua. Under terms of the deal,
E*Trade will take a stake of 5% to 10% in Garage.com and Mr.
Bevilacqua will join the company's board.
The other investors in the Garage.com financing are Mayfield Fund; Credit
Suisse Group's Credit Suisse First Boston Technology Group; and
Advanced Technology Ventures, Garage.com said. Garage.com was
founded two years ago by former Apple Computer executive Guy
Kawasaki.
Monday's Market Activity
Small-capitalization stocks were moderately lower, while Nasdaq stocks
gave up a substantial portion of the gains registered Friday, when the
Nasdaq Composite Index climbed to its highest point since July 16.
The Russell 2000 index of
small-capitalization stocks fell 1.54,
or 0.35%, to 439.65, and the
Nasdaq Composite Index, at
2844.77, tumbled 42.29, or 1.46%.
Synaptic Pharmaceutical plunged 3
1/16, or 34%, to 5 7/8. The
Paramus, N.J., biotechnology
company said Merck has stopped
testing an oral drug for a prostate
condition that is based on Synaptic's
receptor technology. Prudential Securities lowered its rating on Synaptic
to
hold from strong buy.
TheStreet.com, a New York Internet financial-news company, leapt 5
15/16, or 30%, to 25 11/16 following news that the company plans to
launch a Web site aimed at the financial markets in Britain, and that it
received venture-capital funding from investors such as Chase Capital
Partners, Barclay's Private Equity, ETF Group and 3i Group.
Incyte Pharmaceuticals, a Palo Alto, Calif., developer of database
products containing information on human genes, plummeted 14 1/8, or
34%, to 27 1/4. The company late Friday said the U.S. Patent Office
made a patent-dispute finding that favored Affymetrix over Incyte. Incyte
said it will appeal the decision. ING Barings and Warburg Dillon Read
Monday lowered their ratings on Incyte.
ESG Re, a Bermuda reinsurance provider, tumbled 2 15/16, or 23%, to a
52-week low of 9 15/16. The company late Friday said its chief executive
resigned. Donaldson Lufkin & Jenrette Securities and Advest Monday
both lowered their ratings on ESG to market perform from buy.
Computer Task Group slid 1 5/8, or 9.7%, to a 52-week low of 15 3/16
on the New York Stock Exhange after the Buffalo, N.Y.,
technology-services company said revenue and earnings for the remainder
of the year will be below analysts' expectations, citing an industrywide
reduction in information-technology spending.
PairGain Technologies slipped 11/16, or 5.3%, to 12 3/16 after the Tustin,
Calif., maker of digital-telecommunications products said third-quarter
revenue and operating earnings will fall "well below current market
expectations."
Hoover's, an Austin, Texas, publisher of business information that gets
distributed on the Internet, surged 5 5/8, or 50%, to 16 7/8. A J.P.
Morgan analyst issued a positive note about Hoover's, saying the company
will officially launch a revamped edition of its Web site
(www.hoovers.com) on Wednesday, and that it will launch a major
television and print advertising campaign next week.
Leap Wireless International shot up by 5 13/16, or 40%, to 20 1/2.
Morgan Stanley Dean Witter initiated coverage of the San Diego
telecommunications company with a rating of outperform and set a
year-end 2000 price target of $30.
Sound Advice jumped 1 3/4, or 22%, to a 52-week high of 9 3/4. The
Dania, Fla., entertainment and consumer-electronics retailer posted a
second-quarter profit of 21 cents a share, reversing its year-earlier six-cent
loss.
Maxim Pharmaceuticals, a San Diego drug developer, climbed 1 1/4, or
16%, to 9 3/16 on the American Stock Exchange. Maxim said its
preclinical tests of combination therapy with Maxamine (histamine) and
interleukin-2 resulted in reduction and killing of cancer cells in rats
with
prostate-cancer tumors.
Write to Larry Bauman at larry.bauman@dowjones.com
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