ARLINGTON, Va. – The world of online underwriting got a little more crowded recently when Friedman, Billings, Ramsey Group Inc. (FBR) introduced fbr.com, a Web-based investment bank that distributes IPOs and venture capital investments to online investors.
Analysts said the move makes sense considering FBR had no previous relationship with retail investors, who now play an important role in the Internet-heavy IPO market and also are increasing their involvement in venture capital funds.
FBR emphasized that its online effort is more than just a quick-fix solution for the company’s lagging share price, pointing out that fbr.com has been in the works since 1996 but was held back until the online investment community reached a critical mass. FBR has ambitious goals for its new creation, planning to distribute as much as 20% of its IPO stock allocations to fbr.com clients and eventually opening the retail floodgates outside the technology sector.
“This allows us to offer a very real and powerful retail distribution,” said Russ Ramsey, president and co-founder of FBR.
The private equity play hinges on the launch of an accredited investors site that Mr. Ramsey said will come during the second quarter. Through that site, FBR intends to offer individual investors access to future FBR private equity funds and co-investment opportunities on direct transactions the firm is placing or leading.
FBR anticipates significant interest in these funds, and Mr.Ramsey said at least 25% of the next fund would likely come from commitments made through the accredited investor site. That means individual investors would pony up $12.5 million should the next fund simply match the $50 million raised for Fund I. Additionally, Mr. Ramsey said the firm would consider raising buyout or mezzanine funds in the future through fbr.com.
While FBR has begun to establish itself as a private equity manager, its lack of a track record and retail infrastructure have been impediments to earning a recognized place in the market. However, Mr. Ramsey said the Internet has given the firm a new opportunity.
“Our observation is that there is more interest beyond what the numbers reflect,” Mr. Ramsey said. “And we intend to use the medium to market to appropriate investors throughout the world.”
Direct investments will be introduced to members of the site only after consultation with the issuer. However, as the Internet continues to create more excitement around public offerings, Mr. Ramsey said companies might well look to generate that interest earlier by using an e-manager on private offerings.
To be sure, FBR faces plenty of competition in the public arena. So-called “e-managers” like Wit Capital and DLJdirect have been up and running for some time now, winning e-manager roles on a number of recent public offerings.
However, one advantage fbr.com has is that, because of FBR’s presence as a lead manager of IPOs, it can provide immediate deal flow to online buyers without having to attract business from other firms.
In April, FBR was co-manager on a deal from Proxicom Inc. and will co-manage an upcoming IPO from CareerBuilder.com, an Internet-based employment services provider in Reston, Va. The two deals were a direct result of previous investments in those companies through its venture capital affiliate.
Nonetheless, FBR faces the challenge of convincing the skeptics that fbr.com is the real deal.
With so much demand for anything related to the Internet, a number of companies have announced similar plans that never materialized but served to boost their stock price. “[Internet announcements] are like a panacea if your stock price is floundering,” said Amar Mehta, equity analyst for CIBC Oppenheimer.
However, no one interviewed for this story suggested that fbr.com was a bad idea. Analysts emphasized that online retail distribution is where the market is headed, mentioning that IPO issuers are in some cases demanding that e-managers be included in their deals.
“It’s a growing channel,” Mr. Mehta said. “There’s plenty of room in this market.”