Surprisingly, much as with marriage, it sometimes is almost random as to what kind of underwriter a company winds up with. Some great promising companies never get anywhere because they just couldn’t get the right stock market firms behind them. And occasionally some really lousy company makes the big-time because one of the big-name firms decides to throw their weight behind them. And, it’s often some inexplicable chemistry that plays a role in drawing companies and underwriters together as much as basic business fundamentals. And just as in marriage, where people often meet through introductions and usually don’t marry people from the other side of the tracks, often the main thing that matters is that the company and the underwriters are part of the same sort of privileged club which generally pairs up with other members of the club.

Thus, many successful new companies are, in actuality, just break-offs of old companies. The prime example of this is Lucent Technologies, one of the hottest “new” companies in recent years, which is really a spinoff of AT&T’s research division. They have been predestined to be readmitted to the big money club in their own name as soon as they come of age. This can also happen when the top technical people or managers of a public company join with well-known venture capitalists to start up their own competing firm. It’s just a matter of time till these companies go public. The venture capitalists are bringing deals to the underwriters all the time. They depend on each other. The big firms know that the VCs wouldn’t put their money into the firm if they didn’t think it would succeed. Not only that, but because VCs wind up usually controlling the firms they invest in, they almost always install a management team with a good track record managing other public companies. Thus, the underwriters wind up dealing with people they already know are dependable. The whole system is very safe and very insular.

The same people keep dealing with the same people and make money off each other. Not only that, but everybody uses the same big six accounting firms to check the books, and the same dozen or so big law firms to draft the documents and deal with the SEC. The point is, almost nobody new is allowed into the club unless they’re sponsored, usually by a big VC who bought a big part of the company at a tiny fraction of its soon-to-be-public valuation.

Our problem was that I didn’t come out of a big company with a stellar track record and I never was willing to sell a big piece of my company cheap to some parasitic venture capitalist.

As the doors of Wall Street’s big names refused to open for us, I could see I was being punished for being the quintessential outsider. Some of the larger firms even came straight out and told me that we had a great company and if we’d only go out and even now sell a big piece of it cheap to a prestigious venture capitalist, they’d be happy to be part of our underwriting team. If not, we could go to the penny stock brokers and forget about it. This, I reminded myself, was going on despite the fact that we were leading players in the Internet business, which was, at the time, the biggest phenomenon Wall Street had ever seen.