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EDGAR Online's VC SECrets Newsletter
Editor: Tim Middleton, EDGAR Online Analyst editor@edgar-online.com VC SECrets contributors include EDGAR Online Analyst Tim Middleton and Venture Capital Contributor Udayan Gupta. Udayan covered the venture capital industry for more than a decade as a senior writer for The Wall Street Journal. He is the author of the forthcoming book "Done Deals" (Harvard Business School Press, 2000), an inside story of the venture capital industry. /----------ADVERTISEMENT--------------------StockPower provides tools to help you turn your customers Into brand loyal, shareholding customers. Shareholding customers spend more, visit more and refer you more frequently. Find out why more and more companies are tapping into StockPower to create brand loyalty. http://www.doubleclick.net/live/stockpower/default.htm \------------------------------------------/ *** To the Editor*** ---------------------------------------- Stock Option Dangers Overstated by the New York Times Tuesday's (June 13) New York Times featured an extensive article on the dangers of stock options: "The Hidden Cost of Stock Options May Soon Come Back to Haunt." As the Times pointed out, options carry significant costs, especially in a declining or stagnating stock market. How? Companies must buy back millions of their own shares to offset the stock they have dispensed to employees at much lower prices in options programs. The rationale being that if companies did not repurchase their stock, there would be so many shares on the market that the company's earnings, on a per-share basis, would plunge. Yes, the nation's largest 140 non-financial companies are spending about 40% of their earnings on stock buy-back programs. Yes, Dell and Microsoft spent several billions dollars apiece last year in stock buyback programs. But in reality, stock options are not as out-of-control as the New York Times would have you believe. Companies need to get shareholder approval for their stock option grant pools. Institutional investors have been putting the breaks on excess share dilution and greedy plans. Stock options will continue to be great tax deals for both companies and their employees. Without their attractiveness in a tight job market, salaries would jump and with that inflation, then interest rates, then economic downturn. We all need to root for the continued appeal of options, even with its quirky accounting treatment. Look at the global spread of stock options. Many countries now view options as the core of the U.S. economic expansion and business spirit. Companies must learn to stop pitching options as a "get rich quick" scheme. Instead, they should stress the long-term value of options for employees and the link between personal performance, company goals, and stock options. -- Bruce Brumberg is an attorney and the Editor-in-Chief of myStockOptions.com, a new website that will be publicly available soon. ---------------------------------------- ***VC QUESTION OF THE WEEK*** ---------------------------------------- QUESTION: How do I value options in a private company? ANSWER: If your company is private, then you should look at recent grants of options to new employees or at a recent financing round. Typically, options are granted at fair market value so you will be able to figure out the difference between the exercise price of these recent grants and your exercise price. Remember, you also need to consider the future growth of the company, which is greater on a percentage basis for private companies. Valuation of private company stock is much more of an art than a science. -- Bruce Brumberg, myStockOptions.com *** USER NOTE: For public companies, EDGAR Online makes it easy to find out more about stock option plans, option treatment and executive compensation. Here's how you can get started. Go to http://www.edgar-online.com/fts/search.asp and type "stock option" into the Search Text box. You can further narrow your search by entering "stock option granted" or "stock option exercised." You may also choose to limit results by specifying a company (or ticker symbol) to explore, (i.e. ticker symbol "DELL") or a form group. Hint: Companies typically disclose stock option grant information in their Proxy Form (DEF 14A or PRE 14A). *** Advanced User Tip: From the Search Text box, change "stock options" to "stock options" <near/5< granted. NOTE: the phrase "stock options" must be in quotes. Now you have told EDGAR that you want to search all DELL documents in which the phrase "stock options" is within 5 words of the word "granted." Try changing the word "granted" to "exercised." You may also modify the number of adjacent words. Try changing 5 to 20 to widen the scope of your search. /------ADVERTISEMENT---------------------- Purchase Business/Credit Reports from Dun & Bradstreet on over 11 million U.S. businesses. Click on the "Resources" link when you look up SEC filings for any public company, or search by company name and state at http://www.edgar.telebase.com. \-----------------------------------------/ ---------------------------------------- **VENTURE CAPITAL COMPANY PROFILE ---------------------------------------- by Udayan Gupta, Venture Capital Contributor Biotech Startup Emerging as Leader in Memory Loss Treatment By jogging the memory, Memory Pharmaceuticals Corp. (http://www.memorypharm.com) hopes to become a major player in the biotechnology business. By treating the symptom of memory loss in diseases such as Alzheimer's and Parkinson's, the Columbia University start-up could well become the next industry star. The population Memory is addressing is huge. Almost half of all Americans over 85 suffer from Alzheimer's disease, according to the Chicago-based Alzheimer's Association. And by the year 2050, the number of Americans afflicted by Alzheimer's is expected to rise to eight million - double the number at the end of the 20th century. Alzheimer's is a slow killer. It can take anywhere from three to 20 years for a patient to die after being diagnosed, the Association said. As a result, the cost to the healthcare system of keeping an Alzheimer's patient alive and functional can be extremely high. Companies that can help lessen the impact of Alzheimer's are considered extremely valuable to the healthcare system and the afflicted patient. Memory is developing a unique drug-profiling platform to create therapies for learning and memory-related disorders. Called Cognostics, the platform identifies cell-based and physiological assays in an effort to treat the symptoms of mild to moderate dementia - inability to learn and memory loss - caused by Alzheimer's, Parkinson's, and, potentially, Down's syndrome and epilepsy. Cognostics identifies drugs that treat the symptoms, not the disease itself. Memory plans to develop drugs in-house, and to create others through partnerships with major pharmaceutical companies. Memory's larger goal, however, is to develop a product that will curb or prevent memory loss in the greater population, a potentially giant market considering the buying power of the 83 million US baby boomers. It is a market that has not gone unnoticed by others. Today, many other small companies, such as American Biogenetic Sciences, Inc. (ABS), NeoTherapeutics, Inc. (NEOT) and Helicon Therapeutics, and large pharmaceutical firms, such as Pfizer Inc. (PFE), Shire Pharmaceuticals Group plc (SHPGY), and Johnson & Johnson (JNJ) are also looking for similar treatments. But Memory officials believe that the competitors might become allies - especially if the company can develop and test its platform first - selling memory-enhancing drugs to graying populations worldwide. The technology behind Memory is impeccable. Eric Kandel, a professor at Columbia University's Center for Neurobiology and Behavior, and Walter Gilbert, Harvard University professor and Nobel laureate, started Memory in the mid '90's. Shortly thereafter Axel Unterbeck, former head of CNS-Dementia research at Bayer AG (BAYZY), joined as president and chief scientific officer. Columbia, which has an equity stake in the privately-held firm, granted Memory exclusive rights to develop Kandel's patents, in return for royalties. The company is well backed. It has received nearly $15 million in financing from venture capitalists such as Oxford BioScience, VenRock Associates, HealthCare Ventures, Alta Partners, and SR One. And it is aggressively pursuing corporate partners that can provide capital and infrastructure support. In an investment environment in which biotechnology has once again regained investor confidence, and companies with strong backers and technology are sought after, Memory Pharmaceuticals is well worth watching. Memory Phamaceuticals Corp.- Key Players Venture Fund Investors: Oxford Bioscience Partners VenRock Associates HealthCare Ventures LLC Alta Partners SR One Ltd. Life Science Ventures GIMV Investors Principal Officers: Robert S. Cohen CEO and Director Joanne M. Leonard Vice President, CFO and Treasurer Axel Unterbeck, Ph.D. President and Chief Scientific Officer, Director, and Co-Founder ---------------------------------------- **VC SECTOR PROFILE **** ---------------------------------------- Network Infrastructure and Value-Added Services Companies profiled: Flashcom (www.flashcom.com) Intira Corporation (www.intira.com) Jato Communications (www.jato.net) Quantum Shift (www.quantumshift.com) ThinkLink (www.thinklink.com) Most venture capitalists believe in hedging their bets. So, although they might focus on one broad industry segment, they tend not to have too many portfolio companies that are targeting the same customers or the same solutions. But there are exceptions. The Mayfield Fund, one of the few funds that continues to focus on computer technology and the life sciences, is convinced that there is a burgeoning market for network infrastructure and the value added services around that infrastructure. As DSL (Digital Subscriber Line) technology becomes more in demand because of its ability to replace modems and T1 lines, and IP (Internet Protocol) technology becomes a standard for both data and voice transmission, companies that are providing infrastructure support and value added services for these technologies can build substantial businesses. And as service and infrastructure providers these companies may prove to be more real than many of the Internet shadowcatchers. *************************** Flashcom (www.flashcom.com) Flashcom delivers high-speed DSL access to customers in 48 states through agreements with competitive local exchange carriers. Additionally, the company has a multi-year agreement with AT&T to access AT&T's Global Internet system using AT&T's Managed Internet Service. By focusing exclusively on DSL, Flashcom has become the leader in the space. EDGAR INSIGHT: Flashcom filed an S?1 on May 12, 2000. http://www.edgar-online.com/secrets.asp?d=A-1112437-0000892569-00-000385 NOTE: Before going public (i.e. selling shares on an exchange), companies must file an S-1 form with the SEC. This extensive document includes such information as risk factors, financials, strategy, industry, management bios and more. Venture Fund Investors: Mayfield Fund Communications Ventures Intel Corporation Principal Officers: Richard Rasmus President and CEO M. Wayne Boylston CFO **************************************** Intira Corporation (www.intira.com) Intira acts as an outsourcing resource for companies seeking application hosting, hardware and software OS provisioning, network connectivity and infrastructure support services. Through data centers at its headquarters in Pleasanton, CA, and in St. Louis and New York, and through its nationwide broadband network of proprietary management services, the company provides seamless infrastructure performance to e-businesses, applications service providers and independent software vendors. Venture Fund Investors: Mayfield Fund Chase Spectrum Equity NEA Principal Officers: Bernie Schneider CEO David S. Boone CFO John Steensen Vice President, Chief Technology Officer **************************************** Jato Communications (www.jato.net) Jato provides business grade DSL service to small and medium-sized companies in secondary markets directly, and through Internet service providers and value added resellers. Business grade DSL has been proven to be faster and more reliable than residential grade DSL and cable modems. EDGAR INSIGHT: Jato filed an S-1 on December 23, 1999 and filed a request to withdraw its S-1 May 12, 2000. http://www.edgar-online.com/secrets.asp?d=A-1073715-0000912057-99-010533 Venture Fund Investors: Mayfield Fund Crest Communications Partners, L.P. CEA Capital Partners USA, L.P. ABN AMRO Capital (USA), Inc. Access Technologies partners Qwest Communications Microsoft Principal Officers: Gerald K. Dinsmore President and CEO Terri Compton Executive Vice President and COO William D. Myers Senior Vice President, Finance and Strategic Planning, CFO Rex A. Humston Senior Vice President, Engineering and Chief Technology Officer **************************************** Quantum Shift (www.quantumshift.com) formerly MVX.com On May 8, 2000, MVX.COM changed its name to QuantumShift to better reflect the wide-ranging changes it is bringing to the telecommunications industry. The company offers businesses one-stop-shopping for telecommunications solutions and implementation strategies. Through alliances with U.S. -based and international companies, it provides an array of communications services from local and long distance, to frame relay and ISDN. Venture Fund Investors: Mayfield Fund Texas Pacific Group Francisco Partners Principal Officers: Scott Schaefer President and CEO Edward A. Brinskele Co-Founder and Chief Technology Officer **************************************** ThinkLink (www.thinklink.com) ThinkLink is a telecommunications applications service provider offering unified messaging. Users are assigned a local number and an 800 number. All calls, faxes and emails made to the user's home, office, or other locations can be accessed by the user over the phone. The service can be bundled and branded by ISPs, Internet portals, and other companies who want to provide customers with the latest communication technology. Venture Fund Investors: Mayfield Fund Softbank Technology Ventures Principal Officers: David B. Ward President and CEO /----------ADVERTISEMENT-------------------- Subscribe to IPO Express and you can receive company reports, Daily wrap-ups and Weekly summaries of the IPO market sent direct to your desktop. Go to http://www.ipo-express.com.com for more information. \-------------------------------------------/ ---------------------------------------- **COMPANIES MENTIONED IN THIS ISSUE*** ---------------------------------------- ABN AMRO Capital (USA), Inc. Access Technologies partners Alta Partners American Biogenetic Sciences, Inc. AT&T, Bayer AG BioScience CEA Capital Partners USA, L.P. Chase Communications Ventures Crest Communications Partners, L.P. Dell Flashcom Francisco Partners GIMV Investors HealthCare Ventures Helicon Therapeutics Intel Corporation Intira Corporation Jato Communications Johnson & Johnson Life Science Ventures Mayfield Fund Memory Pharmaceuticals Corp. Microsoft MVX.COM NEA NeoTherapeutics, Inc. Oxford Bioscience Partners Pfizer Inc. Quantum Shift QuantumShift Qwest Communications Shire Pharmaceuticals Group plc Softbank Technology Ventures Spectrum Equity SR One Texas Pacific Group The Mayfield Fund ThinkLink VenRock Associates ---------------------------------------- ***PEOPLE MENTIONED IN THIS ISSUE*** Edward A. Brinskele David S. Boone M. Wayne Boylston Robert S. Cohen Terri Compton Gerald K. Dinsmore Walter Gilbert Rex A. Humston Eric Kandel Joanne M. Leonard William D. Myers Richard Rasmus Scott Schaefer Bernie Schneider John Steensen Axel Unterbeck David B. Ward ---------------------------------------- UNSUBSCRIBE INSTRUCTIONS ---------------------------------------- To unsubscribe from the SECrets Newsletter, go to http://www.edgar-online.com/auth/updateinfo.asp and deselect the free newsletter option. If you need your user name or password, go to http://www.edgar-online.com/username.asp. For help, contact support@edgar-online.com. ---------------------------------------- ---------------------------------------- Copyright 2000, EDGAR Online http://www.edgar-online.com ----------------------------------------- DISCLAIMER: The EDGAR Online report contains observations of its editor Tim Middleton, a consultant of EDGAR Online and is for informational purposes only. These statements and expressions are the sole opinions of Mr. Middleton and EDGAR Online does not endorse nor necessarily agree on such statements and expressions. Factual statements in this report are made as of the date stated and are subject to change without notice. Nothing contained herein shall be deemed to be recommendations to buy, hold or sell securities nor shall it purport to be a complete analysis of the companies mentioned. While the information contained in this Report and the opinions contained herein are based on sources believed to be reliable, neither Mr. Middleton nor EDGAR Online have independently verified the facts, assumptions and/or estimates that may be contained in this Report. Accordingly, no representation or warranty, expressed or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information and opinions contained in this Report. ----------------------------------------
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