Veteran Financier Joins the Rush to Launch Net Fund.

THE latest venture capitalist to begin raising an Internet-oriented fund is Steve Kriegsman, founder of Pacific Palisadesbased Kriegsman Group, an investment banking boutique.

"We are going to try to raise a couple hundred million bucks," Kriegsman said. "It will be split half-and-half between the Internet and health care."

For more than three decades, Kriegsman has been a financier, with the bulk of his efforts coming in health care. But like so many others in Los Angeles financial circles, he has been entranced by the siren song of the Internet.

"Never, ever in all of my life have I seen anything like the Internet. I have been in investment banking for 30 years, and there has never been such an explosion. We have had booms before - one in biotech in the '90s - but nothing matches the scale of this," said the 57-yearold Kriegsman.

He believes that as long as venture capitalists can make money by taking companies public, and as long as securities brokerages can make money underwriting new issues, the e-boom will last.

"Just as long as everybody gets rich," he said.

So these days, Kriegsman is immersing himself in the e-world. He sits on the board of New York-based Bitwise Designs Inc., a company that "authenticates" e-mails, assuring that transmissions haven't been altered or spied upon.

He has also completed two rounds of financing for Los Angeles-based IQBID.com, a company co-founded by John Rezner of GeoCities fame. IQBID.com is in the business-to-business sector and helps enterprises worldwide determine the cheapest phone rates.

Additionally, Kriegsman has a stake in Transbid.com, a local company (in the process of moving to Silicon Valley) that plans to install simple Internet devices into the cabs of 18-wheelers. Truckers will then be able to input their location and intended route and learn about cargo available for pick-up along the way. The system will allow many truckers to carry fuller loads.

Like all Internet investors, Kriegsman said that perhaps too much money is flowing into the sector, and eventually there will be a shakeout.

"There probably will be some consolidations, but I think we are in the first inning," he said. "It's like when the automobile was invented. Some people didn't like them, but now everybody drives one."

Stocks vs. Bonds

One of the standard shibboleths of investors is that stocks, in the long run, easily outperform bonds.

Certainly, a plethora of studies seem to buttress that proposition. And who could argue differently now, after one of the hottest decades ever on Wall Street burned its way into the record books?

Michael Bazdarich, that's who.

Bazdarich is the founder of MB Economics in La Crescenta, economic development consultant to Riverside County and monetary policy commentator for CBS Marketwatch.com. He recently took a fresh look at some historical data and drew a few surprising conclusions.

"It's much more of a horse race that you might imagine," he said. "Stocks do not outperform bonds by that much, and by very little in certain time periods."

Take the 1982 through 1998 span. That was a great one for large-cap stocks, which returned a handsome 18.4 percent, annually compounded, according to Ibbotson & Associates. But Treasury bonds did well too, returning 13.5 percent; annually compounded, probably with much less stress on their owners.

Of course, as always in the world of statistics, much depends on which base year a researcher chooses to begin calculations, along with other quirks of figuring.

Take the 1982 through 1995 span, for example. Still a great one for stocks - up 16.4 percent, annually compounded. But Treasury bonds rose 14.4 percent, annually compounded, as well. While some investors picked the wrong stocks in that time frame, a Treasury bond is a Treasury bond.

Of course, 1999 was another banner year for stocks. "But that might mean bonds are due to outperform stocks in the next few years, especially given the higher yields now available, and the fact that stocks have rallied heedlessly over the past year, despite these rising bond yields," Bazdarich said.

Bazdarich, a longtime student of monetary policy, believes the Federal Reserve Board is iron-willed in its determination to keep inflation in check, and so 2000 could usher in slower monetary growth, higher interest rates, and thus skimpier economic growth and softer stock prices.

"The Fed is going to keep tightening until they break this economy," said Bazdarich. "They are bound and determined to slow down growth, and so they will succeed."

Merger Mania

Last year was a real barn-burner on Wall Street in so many ways. The performance of IPOs along with soaring indexes and trading volumes were no surprise.

But it was also a smasher for mergers and acquisitions.

In 1999, there were 9,192 deals announced involving domestic enterprises - up 17.7 percent from the year before. Values for most of those deals were not publicly disclosed, as is typical because they involved private companies.

But the aggregate value of the 3,331 deals in 1999 for which values were disclosed came to $1.42 trillion, according to Mergerstat, an arm of Houlihan Lokey Howard & Zukin, the Century City-based investment house. That's a 19.3 percent increase from the $1.19 trillion value of publicly disclosed deals in 1998.

The average value of the deals disclosed in 1999 was $425.5 million - up 8.1 percent from the year before.

On average, when a public company was acquired, the selling price was 44 percent above previous market capitalization on Wall Street. But prices are not going skyward, at least relative to values: The average price-to-earnings ratio paid by buyers on publicly disclosed deals declined to 243 in 1999 from 25.1 in 1998.

The average 1999 acquisition price of 24.3 times earnings might look a little low, conceded Scott Adelson, managing director at HLHZ, especially compared to the average S&P 500, which trades at about 30 times earnings.

"But you have to remember the vast bulk of transactions are middle-market firms, and the valuations on such firms are not as high as on blue-chip giants or the tech stocks," he said.

While Internet stocks can sell at hundreds of times earnings, and blue-chips at 30 times and above, mid-size companies routinely trade at 15 times earnings, Adelson said.

Contributing Columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [e-mail].