WR Hambrecht + Co was founded in February 1998 by William Hambrecht, former co-founder of Hambrecht & Quist, a San Francisco-based investment bank boutique specializing in technology related deals. Hambrecht slowly ceded control of H&Q (which was sold to Chase Manhattan in September 1999) to Dan Case. Unhappy with what was a largely ceremonial role as chairman, Hambrecht founded WR Hambrecht, a firm with largely the same goals as H&Q – underwriting, M&A and venture capital for tech-related companies. Hambrecht put up $10 million of his own money for his eponymous firm.

Noble goals

Hambrecht's original vision was a firm that would provide access to IPOs to smaller investors, similar to Wit Capital. His plan was to focus more on the distribution and underwriting and have fewer traders and research analysts. That goal proved to be unattainable - Hambrecht + Co hired 22 traders let go by Prudential Securities after their merger with Volpe Brown Whelan in order to handle the volume of trading the company was producing.

Going once, going twice, sold!

Hambrecht's most revolutionary idea was the "Dutch auction" method for selling IPO shares. In a standard IPO, shares are sold at a set price to those who get in on the deal. The problem with this method it that it doesn't always gauge the investor demand for the issue, leaving a lot of money on the table and allocating shares to institutions and individuals with connections at the bank. For example, if an IPO of 1 million shares is priced at $10 a share and rises to $100 its first day, the firm raised $10 million when investors would have paid $100 million for the issuing – leaving $90 million on the table. Through a Dutch auction, which is the method used to sell US Treasury securities, shares are allocated to the highest bidder.

Guinea pigs: not everyone was happy

The first two Dutch auctions were a success. Ravenswood Winery raised $10.5 million in April using OpenIPO and Salon.com, an online magazine, raised $26.2 million in June 1999. The third offering, Andover.Net, raised $72 million in December 1999, but, unlike the other two OpenIPO offerings, shot up on the first day, to $90 per share from $18. Additionally, Denver-based Norton Capital Management filed a lawsuit against WR Hambrecht, claiming that they bid $24 per share for 7500 shares and received nothing. Hambrecht defended the offering, saying the $24 bid was so much higher than the other bids it would have necessitated going back to the SEC and doing another round of bidding.

Pennsylvania tradin'