Shannon Henry's The Download:
Live Discussion With Guest Suzanne Richardson
Thursday, February 4, 1999
Shannon Henry was live online with Suzanne N. Richardson, senior managing director and head of technology investment banking with Friedman, Billings, Ramsey Group Inc., a full-service investment banking firm in Arlington.
Henry's column, The Download, is a look at the latest deals, hires, and business strategies in the region's technology community. Every other week she hosts a discussion featuring guests making waves in the local tech scene.
Richardson has overseen the development of FBR's technology effort – participating in well over $2 billion in capital transactions. The Post 200 profile of FBR includes the latest financial information and company news.
The transcript follows:
Hi, welcome to a conversation with Suzanne Richardson of FBR. Send us your questions about tech stocks and Internet trends. Suzanne, thanks for joining us.
Washington, DC: A group of us is starting an investment club. I'm concerned that the market will swing in the other direction and discourage the group. Do you have any suggestions for an investment strategy that will keep people interested even if the market changes?
Suzanne Richardson: An investment club could be an even more interesting--and profitable-- exercise if there are market corrections, because you may have an opportunity to invest at better valuations. Don't invest all your money at once, and make sure you know well the fundamentals of the companies you invest in first. Some of the ones you choose not to buy at first could be great buys on weakness.
Cambridge, MA: Do you think that there are serious dangers in the ridiculous valuations of technology companies/stocks?
Suzanne Richardson: Certainly there are dangers in some of the valuations of internet stocks--but there are dangers inherent in other, non-technology overvalued companies as well (I admit-not to the same extent in most cases.) Remember, the stock market is all about supply and demand--and demand is high for internet companies that are blazing new frontiers in the area of communications, content, and most importantly, business strategy. It's important to differentiate the leaders from those internet companies that don't have a real business, and are just along for the ride.
Shannon Henry: It seems every chief executive of a privately-owned tech company these days talks about "going public" like it's the Holy Grail. How do you know when a company is ready to enter the public markets? What companies shouldn't go?
Suzanne Richardson: You're absolutely right in your Holy Grail analogy-- but interestingly, the companies and managements that are least focused on the IPO end game are typically those that build the best businesses, and consequently get the best valuations when they do sell or go public. The key for management is to focus on operational strategy first and foremost. A company is ready to go public when it has a strong management team that has demonstrated an ability to grow through different evolutionary stages of a company's lifecycle. Even more important--executives should be able to sleep soundly at night knowing that their growth projections are reasonable.
Arlington, VA: Suzanne: Have you noticed any trends in tech startups over the past year?
Suzanne Richardson: Yes-industry trends such as the proliferation of internet architects-formerly known as IT service providers that specialize in the internet space. As e-commerce grows-and the Christmas e-tailing season certainly demonstrated that ecommerce is imbedded in the public psyche -- the demand for these internet architects are intensifying. Other recent trends include consolidation among internet companies-and I think this will continue to gain momentum.
Shannon Henry: How do you differentiate the "real" Internet businesses from the ones that are just riding the hype?
Suzanne Richardson: Real internet businesses have a business plan that is targeting a real, existing market. That market could be books sales, online communication and entertainment (such as AOL), or providing tools and services that facilitate ecommerce, etc. Unreal--or what I like to call fantasy-land-- internet companies cannot demonstrate a large, SUSTAINABLE, market and CUSTOMER base. Without customers providing revenue that will eventually, at least, drop to the bottom line, a company will not survive for the long term.
Do you think all Investment Banks in the future will need to have an on-line brokerage feature?
Suzanne Richardson: Yes.
What do think the best resources are for tech start up companies in your area and what is the best way to tap into those resources.
Suzanne Richardson: There are a large number of resources for budding entrepreneurs in this area. Start by talking to local venture capitalists-even if your not looking for money. These people are plugged in, see a lot of successful and unsuccessful businesses, and can give great insights into strategy, management and competition. FBR Technology Venture Partners is one local venture fund--there are many others as well. Some other local resources include the Northern Virginia Technology Council-they have a number of committees and events that provide the opportunity for entrepreneurs to meet with successful tech company executives, venture capitalists, and other professionals. Try their web site for contact names. The Potomac KnowledgeWay's Netpreneur Program is another resource-again, they have a web site for news and events.
washington, DC: The Day Players now account for a large amount of trading that occurs in the Market. I have heard wild numbers. Can you specify the % of trading being done by Internet-empowered day traders? Since the name of the game is Day-Trading, these players are surely not investing in DOW or stable Blue Chips. They seem to be investing in Net-centric Stocks and as such make up a far larger proportion of traders in Net stocks. If all above is True, do you think the Internet-bubble bursting now being talked about will occur since these players will keep the trading and supply & demand equation going?
Suzanne Richardson: Don't know the exact percentage--BUT, if day traders were the only impetus behind the market, I believe we would have seen a much more significant correction in mid-January when Brazil devalued and the markets shuddered. In addition, consolidation among Internet and tech companies is driving the market--witness @home/excite and Yahoo/geocities. I think this phenomenon will continue. I don't see Internet company valuations, or the market in general-- suffering a period of negativity anytime soon.
Shannon Henry: What are the pros and cons of working for an investment bank that's not in New York?
Suzanne Richardson: A great question, and I'm not biased. You're seeing a tremendous amount of upheaval among the NY and San Francisco investment banks- with bankers, research analysts and salespeople changing firms like free agents in the NBA. A DC-firm, like FBR, has a much lower turnover rate, which in turn brings a stability and consistency to the quality of service we deliver to each of our clients. This business is about personal relationships, experience, creativity and focus. When you are forced to think and work outside the box because you live outside of the Wall Street box (250 miles outside, to be exact), you are forced to be more creative, more focused, and much, much more relationship driven.
Shannon Henry: How does Wall Street look differently at Internet stocks, as opposed to say, automotive stocks or packaged goods?
Suzanne Richardson: Good question. It almost seems that for Internet companies, revenues and earnings actually diminish valuation. (In fact, one of our analyst referred to the income statement of a tech company as an EXPENSE STATEMENT, since the company had not only no earnings, but no revenues as of yet). However, internet valuations are based on potential returns to investors- the only unknown in that statement is when those returns are actually going to appear. Whereas an automotive or a packaged goods company would be valued by placing a multiple on earnings, internet companies have no earnings. So investors- and analysts- evaluate the potential for growth, and potential, eventual earnings based on that growth potential. A multiple is placed on revenues, since earnings are limited at this time. Because the growth potential for some internet companies is virtually unlimited, some of these internet companies are trading at quite heady valuations.
Arlington, VA: How well represented are women in the VC ranks?
Suzanne Richardson: Not well- nor are there an abundance of women in investment banking (my field). If you are a woman, see this as an opportunity, not an obstacle. I have seen the number of women in banking increase over the past few years, which is encouraging.
Good Afternoon Suzanne,
Suzanne Richardson: I believe the growth in the Internet and e-Commerce is just beginning, and that it will eventually affect every industry that exists. You can compare the Internet phenomenon to the creation of the Railroad, Telephone, or Electricity. It is a revolutionary development-- and we are now in the beginning of the Internet Information Revolution, which should have as deep an impact on society as the Industrial Revolution. Some Internet stocks are overvalued- but many will continue to grow, and other technologies will grow along with them. The Internet is a catalyst that is affecting how all businesses interact on all levels. That is why I believe Internet and technology companies are proliferating and succeeding--both in the real world and the capital markets.
Thanks for all the great questions and to Suzanne for her thoughtful answers! I'll be back on Feb. 18 with UUNet chief executive John Sidgmore. Bye.
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