In The News

After the Bust, A New Day

The Boston Globe
by Beth Healy, Globe Staff

Thursday, January 23, 2003 - Boston was crawling with investment bankers back when the Internet machine was humming. Every Wall Street firm had an office in town or was jetting executives here weekly to woo the region's high-tech executives, venture capitalists, and budding entrepreneurs. Every start-up was seen as a potentially lucrative stock offering or merger deal.

But local investment bankers are a rare breed these days. The stage for technology stock offerings has been dark for nearly three tears, amid the gloomiest market since the 1970s. Goldman, Sachs & Co. has dismantled its downtown banking group. Giants like Morgan Stanley and Credit Suisse First Boston have cut back. A whole league of smaller, tech-focused firms has been swallowed up by bigger players. Former highflier Robertson Stephens was shut down last year.

For Ben Howe, the silence was too much to take, a career investment banker who's spent the past decade running merger and IPO shops in Boston for SG Cowen and Montgomery Securities - both acquired by big banks - he's itching to do deals. But he's not staring at his Rolodex, waiting for the market to come back. He's saying goodbye to Cowen, and the millions of dollars he could reap in the coming years if he stayed there, to launch a new firm that's fashioned after the vanquished San Francisco boutiques like Robertson, Montgomery, and Hambrecht & Quist. But this one's going to have a Boston headquarters.

"We want to attack the growth sector. We want to hit a huge void," Howe said.

The firm's name, America's Growth Capital, reveals the scope of his ambition. The surprise: Friends and rivals in this dog-eat-dog business say he and his founding partner, research veteran Maria Lewis Kussmaul, just might pull it off.

Investment Bankers, venture capitalists, and entrepreneurs say there is a screaming need for banking services and research in the Boston area, after the cutbacks among the Wall Street firms and megabanks. And they all see the ambitious Howe, 42, as able and hard working. But he'll have to lure significant talent to his side, these people say, and attract customers and revenue in a difficult financial climate.

Thom Weisel, the famous founder of Montgomery Securities who now runs Thomas Weisel Partners in San Francisco, has been Howe's boss in the past and will likely compete against him in the future. "I think there's a massive opportunity over the next five years. Right now, the merging-growth company is undeserved," he said. "The only hurdle here is that you've got to build something with scale and size to make an impact, and that's not an inconsequential task. That will be the challenge for Ben Howe."

Weisel has seen that challenge firsthand, having launched at the market's peak, in 1999. Howe figures it will be easier starting in leaner times. For one thing, talent is cheap. Investment bankers are idle and aren't taking home big checks any more. Furthermore, many people are job hunting, after Wall Street's layoffs and mergers.

"This is a platform for people who want to pull out of the bureaucracy and negative environments of the big firms," Howe said. He's hoping to recreate the kind of "highly charged" atmosphere he recalls from the mid-1990s at Montgomery, before the firm was acquired by NationsBank in 1997.

Montgomery was one of the so-called "four horsemen" that dominated high-tech banking in the 1980s and 1990s and prompted the Wall Street banks to jump into the game with a vengeance. The others were Robertson, Alex. Brown, and Hambrecht & Quist. Over the past five years, those firms have been merged and re-merged into huge companies where, current and former employees complain, their entrepreneurial culture was lost. Last year, Robertson, one of the most active bankers of the Internet era, was shut down by its parent, FleetBoston Financial Corp., when its profits turned to losses.

Christopher Pasko, a managing director at Morgan Stanley Dean Witter, is one of the last Wall Street bankers standing in Boston. He said there's a need for investment firms that can serve emerging companies.

Charles Kane, chief executive of Corechange, a private Boston software company, lamented that young companies get far fewer visits from bankers and research analysts since the IPO market dried up.

Research is key to America's Growth Capital's business plan. Kussmaul, 44, Howe's co-founder, was an investment banker and managing director at Cowen, where the two worked together, from 1996 to 1998, when the firm was acquired by Societe Generale. She's now hiring a team if tech and health care analysts to be up and running in the second quarter of this year.

"We're going to be doing deep, fundamental research," Kussmaul said, noting that some 3,000 Nasdaq-listed companies are no longer covered by research analysts. And her group will be targeting private start-ups too, to get a beat on the next generation of companies in line to go public when the market recovers. "We're going to win the entrepreneur."

The strategy is simple, and perhaps surprising, after last year's crackdown on investment bankers using research to win IPO business. Howe and Kussmaul hope that by getting close to venture capitalists and young companies, they'll get the first call when those companies need baking services. Both executives insist there's no conflict in their approach.

Kussmaul said that, as an analyst, "You're bringing business to bankers. They're not telling you what to do." CS First Boston and other giants agreed in December to a massive settlement with regulators, after investigations turned up e-mails and other evidence of bankers controlling analyst recommendations. Howe is mulling issuing research reports with none of the controversial - and often transparent - "buy" and "hold" recommendations that ignited the Wall Street probes.

"There has to be alignment between investment banking and research," Howe said. But, "You're going to come at it without the baggage from the past and having learned from the industry's mistakes."

That's been his pitch, in part, as he's presented his new venture to some key people around town. He's been to see Fidelity's Peter Lynch and has recruited former Fidelity brokerage chief Bob Mazzarella to his advisory board.

If things don't happen, Howe will be more disappointed than anyone. He expects to have 40 employees by the end of the first year. He and Kussmaul are raising $5 million in capital to get started; they and other partners they hire will invest, along with some high-profile executives they're targeting. Howe's making conservative business assumptions in his plans, but as a guy who's used to producing $20 million in annual revenue himself, his expectations are high. If America's Growth Capital doesn't have $100 million in annual revenue and well over 100 employees in five years, you won't hear Howe bragging.

There are plenty of folks who'd like to see them succeed. Venture capitalist Rich D'Amore of North Bridge Venture Partners, weary of Wall Street firms that pop in and out of town, said he'd vote for a firm that has roots here.

"It's a good time for them to put the group together," D'Amore said. "It'll be nice to have a bank that starts in Boston."

Beth Healy can be reached at bhealy@globe.com.