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Evaluating Dot.come-ons

While evaluating dot.com offers has always been dicey, the current shakeout among online companies has raised the stakes sharply.

1Aug

Larry Stranghoener was never an "Internet kind of guy," he says. Indeed, when the former Honeywell Corp. CFO was squeezed out of his position in the AlliedSignal Corp. merger last December, he barely considered the dot-com propositions streaming in. It took months for a friend, an original investor in technology recruitment site Techies.com Inc., to finally break through--introducing Stranghoener to CEO Dan Frawley, who made an offer. The main components: a base salary significantly lower than competing offers already in hand, and "several hundred thousand" stock options that would vest after four years--if the firm's IPO ever materialized. In January, Stranghoener, 46, signed on as a "Techie." Now, he says, "it's fun being part of something groundbreaking."

Such matchmaking is increasingly common as dot-coms duke it out for seasoned financial expertise. But while evaluating such offers has always been dicey, the current shakeout among online companies has raised the stakes sharply. For one thing, of course, salary is usually a relatively minor part of the equation in the equity-heavy compensation packages on the table. And since most ventures still lack profits, telling a sweetheart from a dud requires a new set of metrics. What to look for, then?

Stranghoener, for one, found value in Techies .com's compelling business model and management team. From his Honeywell days, he knew the high demand for top-notch technical workers the dot-com recruits, and was impressed with early profit prospects. And, finally, he had "such confidence in the CEO."

VC Pedigrees
For More.com CFO Laureen DeBuono, who entered cyberspace last fall, a crucial factor was "a huge, A-number-one VC." Health-products purveyor More.com had that: Softbank Technology Ventures (the fund that has also backed Yahoo and E-Trade) and more--former Apple Computer Inc. CEO John Scully.

In Warren Jenson's case, a long-term vision led to his decision to fly from Delta Air Lines Inc. to online retailer Amazon.com Inc. "I loved the Internet space, I loved Amazon's play within that space, and I loved the team that was assembled," he says. And the money ("probably the fourth factor" in his decision) didn't hurt. Jenson's overall package--$2.3 million in cash compensation and 2 million options worth $50.6 million last year--was far higher than what he forfeited when he left Delta last October. Still, he took on higher risk. A recent BusinessWeek story, for instance, asked, "Can Amazon make it?"

Comfort In Uncertainty
Sometimes location can be the deciding factor in a move. Keith Hall had survived three companies in four years of mergers and buyouts--and six months of unemployment--so he knew he could handle the uncertainty of a start-up. But he wanted to stay in North Carolina. So, last June, after studying a half-dozen dot-coms, Hall took Charlotte-based Lendingtree.com's offer of $79,000 in salary and a $75,000 bonus, along with unexercisable options valued at $801,600, betting on the online loan exchange's product concept. "Here's a huge industry--$1.9 trillion--and only 1 percent was being done online," he says. As CFO, he helped with the February IPO that sold 4.2 million shares at $12 each. Then he watched the number of loan requests nearly double in the first quarter, just before the stock price plunged briefly to below $5.

If things don't work out for a dot-com, Hall says, "what you learn by stretching yourself, you can apply to another company." - - A lix Nyberg

A WEB WELCOME 

Some CFOs who leapt to Internet firms

Name:From:To: (When)
J.Michael KellyGTEAOL (6/98)
Stock had split four times when he joined the company; now merging with Time Warner.
Frank JoyceReed Elsevier PublishingTheGlobe.com (7/98)
November '98 IPO broke records; now, with cash- flow problems, it's speculated Joyce may leave.
Keith HallBroadway & SeymourLendingtree.com (6/99)
At 46, the oldest executive in the company; led IPO in February.
Warren JensonDelta Air LinesAmazon.com (10/99)
His 2 million options swung in value from $226 million last October to $64.9 million this past June.
Laureen DeBuonoGN ResoundMore.com (11/99)
IPO plans were shelved in May after March filing with SEC.
James MooneyBaanTradeout.com (1/00)
The B2B surplus exchange posted $18.7 million in losses before its March 15 IPO filing.
Larry StranghoenerHoneywellTechies.com (1/00)
IPO plans were shelved in March; 1999 net losses of $37.7 million on $3.25 million in revenues.
Heidi MillerCitigroupPriceline.com (3/00)
E- commerce site had $149.5 million in cash on hand as of the end of first quarter.

Source: Company reports

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