PEOPLE: ANDREW KLEIN AND ROBERT H. LESSIN — WIT’S BEGINNING IS A REVOLUTION IN INVESTMENT BANKING, THEY SAY

Andrew Klein caused a minor sensation in 1995 when he floated the first-ever initial public offering on the Internet, raising $1.6 million from 3,500 investors for his Spring Street Brewing Co.

The brash gambit’s success led the former securities lawyer to create Wit Capital Corp. as an on-line investment bank for the masses. The concept was intriguing enough to attract $11 million in angel money.

But even after laying the groundwork, Mr. Klein, 37, found it difficult to put his plan into practice. For months after Wit’s September launch, it could convince Wall Street to throw it only a paltry share of the occasional deal.

All that has changed in the past three months. The company has nearly doubled its staff by attracting well-known names from New York’s Silicon Alley and high-powered talent from Wall Street. They all believe that they’ll be on the front lines of a revolution that will transform investment banking.

“Wit Capital will take the front end — high-caliber investment banking professionals — and marry it with the discount brokerage model and new technology,” says Mr. Klein.

The entrepreneur plans to raise private equity for emerging companies and also give rank-and-file investors a shot at the lucrative public offerings usually reserved for big institutions. Tying it all together is an on-line system supplying investors with everything from road shows to research, the centerpiece of a strategy to drive down Wit’s costs to a fraction of brick-and-mortar brokers’.

The breakthrough came last winter after Robert Lessin, then a vice chairman of Salomon Smith Barney, invited Mr. Klein to lunch twice in two weeks. Then, two weeks after the second meeting, Mr. Klein was suddenly summoned to the office of Mr. Lessin’s attorney. The lawyer told the astonished entrepreneur that Mr. Lessin had just resigned from Salomon Smith Barney and wanted to become Wit Capital’s chairman.

Mr. Klein did not hesitate to accept the offer. “The possibilities changed overnight,” he says.

Mr. Lessin, 43, brought Wit a Rolodex of the most prominent names in American business, assembled during two decades on Wall Street. Recently, he had stepped back from dealmaking and started sinking a sizable chunk of his personal fortune into Internet start-ups. In Wit Capital, Mr. Lessin found a ready-made vehicle for his ambitions.

“I was in training for this job for 21 years,” he says. “I was going to do it with Andy or without him.”

The concept has the ring of an idea whose time has come. It goes over big with start-ups in need of capital — and retail investors yearning for a shot at IPOs. Now Wit must prove that it can deliver investors who will pony up for more shares in the months after an offering.

“Retail investors need a person they can have a dialogue with,” says Kamal Mustafa, chief executive of BlueStone Capital Partners, a Manhattan investment bank that caters to small and midsized firms and has worked with Wit. “It doesn’t work with a computer-based system.”

Wit’s new recruits acknowledge the risks. But they have faith in Mr. Lessin and think that the gamble will eventually pay off. Some took steep pay cuts, as much as 80%, in return for a chunk of equity.

The additions include President and Chief Operating Officer Ronald Readmond, 52, a former vice chairman of Charles Schwab Corp.; West Coast chief Matthew Carbone, 32, a former Smith Barney managing director; and Francine Sommer, 49, a former general partner in the $10 million Gabelli Multimedia Partners venture fund, who will manage a series of venture funds that will be open to small investors.

Crain News Service