Wit Capital was founded in 1996 by Andrew Klein, now vice chairman and chief strategist at the New York-based investment bank. Klein, a Harvard law graduate, had previously founded Spring Street Brewing Company after a six-year stint in corporate law. Spring Street claims the distinction of being the first firm to complete a public offering over the Internet, and in March 1996 created the first web-based trading platform for the company's shares. In many ways, this was the precursor to Wit Capital's philosophy concerning IPOs. Wit professes a "first-come, first-serve" approach to public offerings, and any Wit customer with $2,000 in their account is eligible to participate in IPOs. Traditionally, investment banks had given preferential treatment to wealthier customers, with some banks requiring as much as $1 million in an individual account before a customer gets access to IPOs. While the public offering process still isn't completely democratic, Wit's strategy has given investors access to hot IPOs they normally couldn't touch. Wit leads online investments in IPOs, participating in 36 in the first quarter of 2000 alone, 11 more than their closest competitor, E*Trade. Some of Wit's hits include Palm, Inc., Cobalt Networks, Goldman Sachs and MiningCo.com (now known as About.com).

New blood at the top

The company got some much-needed muscle in the spring of 1998. In late April, Robert Lessin resigned as vice chairman at Salomon Smith Barney to become Wit's chairman. In June, Ronald Readmond, formerly vice chairman at online brokerage Charles Schwab & Co., joined as president and COO. The deck was reshuffled in March 1999 when the two were named co-CEOs. Lessin and Readmond remained chairman and vice chairman, respectively. Wit also scored a major coup in February 1999 when Jonathon Cohen joined the firm as director of research. Cohen came from Merrill Lynch, where he had headed up the Internet research department. He has been a fixture on Institutional Investor's "All American Research Team," the annual listing of the best analysts in the industry, getting on the "team" from 1996-1998. Cohen's arrival immediately boosted Wit's research department.

Boost from Goldman

Wit Capital received another boost to its credibility in March 1999 when venerable investment bank Goldman Sachs took a 22% stake in Wit for about $20 million. In exchange for the boost in status for Wit, Goldman expanded their distribution channels, allowing Wit customers the chance to get in on deals underwritten by Goldman.

An IPO of their own

In the spring and summer of 1999, the Internet IPO market was booming. Wit Capital, a forerunner of the Internet IPO, saw that as the perfect opportunity to make a public offering of their own. The company raised $70 million in their offering, and the stock price rose over 63% on the first day; not as eye-popping a performance as some of the Internet offerings Wit Capital participated in, but still impressive by any standards.

Expanding reach

Typically, Wit has been a secondary or co-manager on all deals. (In fact, Wit wasn't even listed as lead manager in its own IPO. That honor went to Bear Stearns.) The firm has been forced to rely on shares from larger brokers. That approach has allowed the company to get in on a healthy number of deal: Wit Capital co-managed 57 deals in 1999 and participated in another 71. Wit has tried to expand that reach, however. The firm acquired Soundview Technology Group, a Stamford, Conn.-based boutique firm. The deal, completed in January 2000, was valued at $310 million. The merger added 23 investment bankers to Wit's staff, increasing the total to 58. Wit's research team numbered 44 after the merger, up from 14. (Wit reportedly gave Soundview staffers $25 million in stock to convince them to stick around.) Soundview had co-managed 31 IPOs in 1999, and had $16 million in profits in 1998 (unlike Wit, which lost $20.9 million on $48.6 million in revenues in 1999). Most importantly, though, Soundview brings a truckload of support staff necessary for a serious underwriting presence. For example, Soundview has an experienced team of market makers, the salespeople who create interest for a company stock. "[Soundview] takes us to the next level of the capital formation process," Wit co-CEO Ron Readmond told Red Herring. Wit's investment banking operations have been renamed Wit SoundView.

International presence

Wit has also expanded internationally. They announced an alliance with Enba, a Dublin, Ireland-based financial services firm, to create an Internet-based investment bank in the Ireland called Wit Capital Europe. Wit contributed $5.5 million for a 55% stake in the venture, which will initially focus on business in the U.K., France and Germany. Edward Annunziato, formerly co-head of investment banking for Europe, Middle East and Africa for Merrill Lynch, was named CEO of the European venture in March 2000. Wit also exchanged about $31 million in stock for a 12% interest in Enba. Additionally, the firm has established a Japanese investment bank, cleverly dubbed Wit Capital Japan. WC Japan raised over $40 million in financing in 2 rounds of venture capital financing.

Whoops!: an IPO glitch

In late March 2000, around 20,000 Wit customers received e-mail notification that they had been allocated shares in Telocity's IPO. (Telocity is a Cupertino, Calif.-based maker of Internet devices). A human error led almost everyone who had initially expressed interest in the offering to believe they had been granted shares. Some customers received more than they asked for, while others had never confirmed their order with Wit. It turns out only 2,000 customers received shares, and Wit suffered minor embarrassment. (The remaining 18,000 didn't miss out on much. Telocity's stock closed at $13.25 at the close of the first day, up $1.25 from the $12 offering price.)

Bye-bye brokerage

In May 2000, Wit SoundView put the breaks on becoming a full-service investment bank, choosing instead to focus on underwriting activities. Wit entered into a strategica alliance with E*Trade, essentially exchanging Wit's retail brokerage activities for E*Trade's underwriting unit, E*Offering. The deal also included the transfer of 32 million shares of Wit SoundView to E*Trade shareholders. "The E*Offering acquisition and our exclusive strategic alliance with E*Trade is another step in the evolution of our corporate strategy," Readmond said in a release at the time of the deal. "It represents an aggressive move, catapulting Wit SoundView to the next level and positioning us to compete successfully for lead manager roles in Internet and new technology offerings."

Getting in pre-IPO: Wit's VC venture