WALL STREET WEST

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Another Player Jumps Into Hot Online Investing Game

Maybe New York City has Wall Street, but Los Angeles or at least Santa Monica seems to be stepping up to the plate when it comes to owning the title of “Virtual Wall Street.”

Yet another Santa Monica-based firm, GlobalNetFinancial.com, is making strides in the online investment banking, trading and stock syndication game. It’s joining outfits like dsm.com, the Santa Monica-based online outlet for private equity deals, and Trading Edge Inc., the online marketplace for institutional trading of junk bonds, in the push to do more deals on the Web.

GlobalNetFinancial’s history is perhaps more colorful than most dot-coms. The company founder is Stanley Hollander, who also serves as chairman and chief executive. In previous incarnations, Hollander was head of the local investment banking team for New York-based securities house Gruntal & Associates.

Sensing opportunity, he split off from Gruntal a few years back and started Santa Monica-based International Capital Growth Inc., a publicly traded investment banking boutique that specialized in small-cap offerings.

“But you know what happened to small caps,” said GlobalNetFinancial spokesman Robert Prag. “They have not done anything (appreciated much) for years. Hollander was about to shut things down.”

But in 1997, he had a brainstorm. First, he decided to rename International Capital Growth at that point almost a shell company and concentrate on becoming a leading online source of news and financial services in Europe, which was lagging well behind the U.S. in Web services.

Pursuant to that, Hollander formed alliances with U.K.-based Freeserve plc (freeserve.com) and World Online, which are two of the leading European Internet service providers, each akin to America Online in the United States.

As part of the arrangement, GlobalNetFinancial provides financial and business news content to Freeserve and World Online, often on an exclusive basis. In exchange, GlobalNetFinancial earns the right to offer European Web surfers highly visible links to financial services such as the trading of stocks or buying of insurance.

For example, freeserve.com’s portal features prominent links to Web sites hosted by GlobalNetFinancial.

To make money, GlobalNetFinancial takes a fee for all financial business conducted through those affiliated online services, and also has been taking equity stakes in the online purveyors of services that operate within its Web space.

“That’s what’s different about our revenue model,” said Prag. “We don’t rely on banner advertising, which hasn’t shown itself to be a profitable model. We make money every time someone buy or sells stock, or buys insurance, through our Web site.”

As if to offer proof of the pudding, GlobalNetFinancial announced last week that it is upping its equity stake in Eo.net, from 8 percent to 29.9 percent. Eo.net is an online seller of initial public offerings in Europe that’s featured on GlobalNetFinancial’s Web site. GlobalNetFinancial traded 800,000 of its shares (market value $12.25 million) to Eo.net in exchange for the increased stake.

GlobalNetFinancial also announced the launch earlier this month of stockacademy.com, an online securities brokerage serving the European market.

So far, GlobalNetFinancial is not making money. But where a few years ago it was a nearly worthless shell company, now it touts a market cap north of $300 million.

Prag expects to see profits within a couple of years, and for GlobalNetFinancial to make some inroads into the U.S. online market as well.

Christopher Jennings, managing director in Santa Monica with Minneapolis-based securities brokerage Friedman, Billings, Ramsey & Co., also sits on the GlobalNetFinancial board.

Hitting the Beach

Maybe the Internet has lost some of its glamour as an investment hot spot, but venture money continues to pour into Web companies that have a good story to tell.

Last week, Woodland Hills-based NextLeft.com, an outfit with 120 employees that provides strategy, design and development services for the creation and management of online businesses (usually by existing brick-and-mortar companies), announced it has received $10 million in a second round of venture financing.

The money came courtesy of unnamed individual investors, as well as from Philadelphia-based Advanta Corp., and Plum Holdings LLP, also a Philly firm.

Year-old NextLeft is certainly in a hurry; this year it has already acquired two other Web service firms C14 Productions and Systems Engineering Associates, both based in San Diego.

Though NextLeft is opening offices in New York and London, it is putting the brunt of its efforts into servicing companies in Southern California, said Rich Harrison, vice president of operations.

“We are expanding, but most of our business is in Southern California,” he said. “We are strong in serving entertainment and financial companies.”

Interestingly, like so many other Web-centric firms, NextLeft wants to be in Santa Monica, and is moving there shortly, despite office rents in the bayside city that are two or three times as high as in Woodland Hills.

Why the switch? “Our employees want us to be there,” said Harrison. “Woodland Hills is not the sort of place of place a Web firm wants to be.”

Economic development administrators, take note.

Short Takes

In other venture capital news, Pasadena-based, publicly held Acacia Research Inc., a sort of umbrella company for high-tech ventures, announced it had raised $36 million in first-round financing for Seattle-based CombiMatrix Inc. and taken a majority equity stake in the company.

CombiMatrix produces micro-arrays (tiny electronic circuits) using electro-chemistry and semiconductor chip technology

Los Angeles-based How2TV.com said it has raised $8 million in first-round financing through a private placement led by El Segundo-based Chase Capital Partners. How2TV is a Web site that consumers can access for graphic, video and text information about how to assemble or install products they have purchased

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].

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