(FORTUNE Magazine) – STAKING A CLAIM IN THE 'INTERNET SPACE'

"It really is incredible," Bill Hambrecht is saying to me over the phone. "No, I've never seen anything like it." And just what does the dean of infotech banking find so astounding? (Hambrecht, 62, co-founded H&Q 31 years ago!) Well, we've been yakking about the Internet, of course. Or more specifically, about the business of investment bankers' taking Internet stocks public. Think about it. Everybody sees the public side of the frenzy that hot Net IPOs create. So imagine what's going on behind the scenes! Visualize this: A freakin' mosh pit, filled with sharp-elbowed bankers frantically jostling with hypergrowth companies.

For investment bankers, the competition to underwrite Internet stocks is only slightly less crazed than the 1889 Oklahoma land rush. Staking a claim in the "Internet space," as they say in the biz, has now become mission-critical. All of sudden these guys (and actually quite a few gals) are staring at an awesome new growth business. BT Alex. Brown, which was the lead banker on AOL, Infoseek, CDNow, and Cyberian Outpost, had four Internet bankers last year. Today it has 15 and counting. "The pace is unbelievable," says Anne Martin, a senior banker in the group. Another factoid: There are now some 47 Internet analysts on the Street. How many were there five years ago? I'll go out on a limb and say zero.

You like numbers? We got more numbers. Or at least Brad Koenig does. Along with Lawton Fitt (that's a she), Koenig helps drive Goldman Sachs' Internet practice. "When we took Yahoo public in 1996, it was almost an object of ridicule," Koenig says. "At the time of the IPO, Yahoo's market cap was about $300 million. Today it's about $30 billion. That's 100 times in three years. No one's laughing anymore." More numbers? Koenig figures the total market cap of all Internet IPOs (when they went public, that is) done from 1995--the beginning of time in this business--through the end of 1998 was about $30 billion. Those same companies now have an overall market cap of about $250 billion. So the value of these companies has grown about eight times. Amazing, huh? Goldman, which helped bring back the IPO market last fall by successfully launching eBay, is clearly the powerhouse of the business, with 55 infotech bankers and a killer market share.

But other banks, such as Hambrecht & Quist, have dozens of deals in the pipeline. Robert Keller, who heads up this business for H&Q, reports that deals are so plentiful right now that the SEC is having a tough time keeping up. Keller says to look for beaucoup de e-tailing and i-content deals this spring. That is, of course, if the market holds together.

The reason getting IPOs is so important is that the deal often creates a career of follow-up work. "We just finished negotiating the Excite-@Home deal," says Bob Emery, COO of Robbie Stephens, which, not surprisingly, did the Excite IPO. In fact, secondary financings--like Morgan Stanley's recent landmark $1.25 convertible issue for Amazon.com--and M&A deals are probably just beginning to ramp up in this business. Nice work if you can get it!

Oh, and back to Bill Hambrecht. His new firm, W.R. Hambrecht & Co., will sell shares of IPOs over the Internet, priced by prospective shareholders via Dutch auction, perhaps eliminating the advantage enjoyed by institutional investors. That's the next step, isn't it? Using the Net itself to distribute securities. Does this have the big boys scared? Not if they're smart. Hambrecht may even partner with one of the old-school firms. (Goldman Sachs?) Bigger picture: Securities underwriting is just another business that is being rewritten by the Internet.

HOT! HOT! HOT!

Okay, so which large mutual fund company grew the fastest last year? Vanguard has gotten a lot of ink for outpacing Fidelity, but it wasn't numero uno! No, that honor goes to...Janus! The Denver-based shop was on a Rocky Mountain high in '98, growing its assets nearly 60%. Was it new money (i.e., marketing)? Or performance (i.e., tech stocks)? According to Janus spokesperson Chrissy Snyder, one-third was new money and two-thirds was performance. Much of that strong performance was due to the work of money managers like Scott Schoelzel, who's a heavy-metal techie. (Now if Helen Young, their international fund manager, would ever do an interview, I'd really be impressed.) By the way, Fido was No. 11 on the list, but shed no tears for Ned Johnson's little company. It still grew 24%, and in absolute terms its asset base climbed by $102 billion, more than any other complex's. Whoa! $102 billion!

LEON'S LAMENT

Ever heard of the Pirate of Prague? I'm talking about one Viktor Kozeny, a shadowy thirtysomething Czech with a degree from Harvard who once partnered with Michael Dingman and reportedly savaged the Czech capital markets. Now sources say that Kozeny--whose life story is fit for a John Le Carre thriller--is back. This time he has targeted Azerbaijan, snapping up vouchers of companies the government has pledged to privatize. Kozeny, who has a house in Aspen, has sold stock in his company (called, amazingly enough, Oily Rocks, after a formation in the Caspian Sea), which holds these vouchers, to a group of wealthy neighbors including Frederick Bourke (he of Dooney & Bourke handbags) and investor Aaron Fleck. Says Fleck: "Would I make the investment again? No."

Another Kozeny customer: not-so-mellow hedge fund manager Leon Cooperman of Omega Advisors. Cooperman bought millions of dollars of the vouchers from Kozeny. "We made an investment in these vouchers that has thus far proved to be a disappointment," says Cooperman. "If the Azerbaijan government wants continued access to Western capital, it would be prudent for them to make good on their promise to privatize these companies." The prognosis for these securities? Questionable, at best. Says one source: "My assumption is that they are going to be worthless."