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IPO Roadshows on the Web: Let the Little Guys In The SEC's half-move to open these info sessions up doesn't go nearly far enough The process companies use to become public is perhaps the single aspect of Wall Street that's being most transformed by the Internet. Newly minted shares are still really only available to major institutional investors -- not to individuals. But online investment banks, including Wit Capital, E*Offering, and W.R. Hambrecht, have sprung up to change that. And online retail brokerages such as Charles Schwab and E*Trade are partnering with investment banks to help clients get coveted IPO shares. Meantime, ordinary investors are using the Web to get information on coming IPOs: They can read prospectuses online and track hot companies on numerous financial sites. Even as the Net is doing so much to pry open to the IPO market to regular folks, it's curious that the Securities & Exchange Commission -- which has championed the idea that small investors should get the same access to information as big investors -- isn't doing more to make that happen. This issue has come to the forefront most recently wih respect to IPO "roadshows" -- presentations put on for major investors by companies about to go public, but which the SEC forbids ordinary investors from attending. On Nov. 12, the SEC issued what's known as a "no-action letter" to Charles Schwab & Co., which basically says regulators won't take action against Schwab if it gives certain individual-investor customers access to Internet broadcasts of IPO roadshows. But the Schwab letter applies to a select group so wealthy and so small that it's clear the agency is dragging its heels. Schwab's action applies only to its "Signature Gold" customers, who have more than $500,000 in their accounts or trade more than 24 times a year -- hardly ordinary investors. LOWER THE BAR. "We think [Internet roadshows] should be open to everybody," says Hardy Callcott, Schwab's general counsel. "The SEC wasn't willing to go that far." He notes that the SEC did say it might revisit the issue and open up roadshows to more investors if there are no problems once Schwab starts its Webcasts, sometime in the first quarter of next year. "They move one step at a time, and this is a step forward," Callcott says. Meantime, other firms, including Wit Capital, plan to petition the SEC to lower the bar. The reason the SEC doesn't move faster is its concern that in a roadshow environment many individual investors won't be able to glean a company's real prospects. "Their traditional logic with roadshows being closed to most individuals has been that it protects the widows and orphans who may not be sophisticated enough to sort out the hype in a new offering," says Jay Ritter, a finance professor at the University of Florida in Gainesville. In its letter to Schwab, the SEC said it's waiting to address electronic roadshows more fully as part of an coming regulatory overhaul of the IPO process. In the meantime, though, small investors aren't being dealt with fairly. In fact, they're the only ones being shut out from roadshows. "John Q. Public can open up an account at an online investment bank, participate in an offering, read the prospectus, and buy an IPO, but can't watch the roadshow," says Nick Balletta, president of NextVenue, a leading provider of Internet roadshows. "Obviously, there's an inherent conflict that the SEC is going to have to resolve." IN THE FLESH. Individual investors can learn a great deal from watching roadshows on the Net. Not only do they see a presentation that may make a company's business model easier to grasp than the written prospectus can but they also get to see management in the flesh. "With any startup venture, you want to see management in action, look in their eyes, see their enthusiasm, and watch how they respond to questions from folks in a room," says Balletta. Investors could also theoretically submit questions over the Internet -- and benefit from hearing the questions that professional investors are asking. Even if individual investors have no intention of trying to get in on shares at the offering price, they can use roadshows to learn about new industries or technologies that will be hot next. John Cabell, co-portfolio manager of the USAA Aggressive Growth Fund, which invests heavily in IPOs, says sitting in on presentations about private companies helps him stay on top of technology developments and generate fresh investing ideas for the fund, even if he doesn't buy the IPO (see BW Online, 12/8/99, "This Mutual Fund Can Open the IPO Door for You") A more open roadshow also would benefit companies coming public by helping build a stronger base of support for a new stock among individuals, says Alberto Vilar, portfolio manager of Amerindo Technology Fund. While new stocks seem to inevitably sell off after a heavy opening day of trading, "in the next round, individuals can come in and be buyers because they saw it on the Internet," he says. NOT SO GULLIBLE. Ritter, for one, thinks the SEC has a point -- and that many individual investors would get snowed by roadshows. "The executives have a very polished story to push, and they are emphasizing the good things that can happen," he says, adding that individuals can get all the information they need from reading a prospectus. "It would be easy for unsophisticated individuals to look at the roadshow and not be sufficiently skeptical about all the things that could go wrong that the executives aren't volunteering." The number of investors who are that gullible is likely to be small, however. While providing a free flow of information, the Web has also brought about an era of bogus e-mail pitches, inflammatory stock message boards, and widely quoted stock touts. Most Internet-savvy investors have learned to be skeptical. And IPO roadshows are hardly a free forum for executives to tout their company: They must follow strict guidelines and adhere closely to the information in the prospectus. When it comes to Webcasts of IPO roadshows, the SEC should be telling small investors to come aboard, not to take a hike. Stone is an associate editor at Business Week Online _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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