October 22, 1998

Start-Up Seeks to Put Firms,

Investors Together Online

By LISA BRANSTEN

THE WALL STREET JOURNAL INTERACTIVE EDITION

Home Depot Inc. won't sell you a hammer over the Internet, but by the end of this year it plans to offer something more valuable.

Thanks to StockPower Inc., a San Francisco start-up that is helping companies automate the process of selling shares to the public, in the next few months Atlanta-based Home Depot, the nation's biggest home-improvement retailer, plans to start selling its shares online.

Join the Discussion: What effect do you think online stock offerings will have on investing?

Direct stock-purchase plans are a relatively unknown but increasingly popular way to buy shares because they allow individual investors to avoid the high fees and account minimums common when buying through a broker. In 1994, the Securities and Exchange Commission helped jump-start the growth in direct stock plans by making it easier for companies to set them up.

Difficult to Buy Directly Online

About 500 companies now offer direct stock-purchase programs -- up from 52 in 1994 -- and as may as five million investors participate in them, said Charles Carlson, author of "Buying Stock Without a Broker." But even as Internet brokerage firms and electronic commerce have boomed, it has been all but impossible to buy directly from a company online. StockPower hopes to change that.

One of the company's most innovative ideas is to turn investors, who have a stake in a corporation's success, into consumers. StockPower will bundle SEC-mandated shareholder communications such as proxy statements and annual reports with perks and pitches for products, such as discount coupons.

"StockPower appeals to us because it's another channel to reach interested investors through the Internet and it will be lower cost since we won't be mailing materials," said Larry Menter, senior corporate counsel at Home Depot.

Rick Hutchinson, StockPower's president and chief executive, said the company's aim is to help corporations sell to people who already have a vested interest in a company. "We're trying to take advantage of the fact that we're creating this bilateral relationship [between shareholders and the company] and one of the essences of the Internet is direct connections," he said.

Loyal Consumers

There is plenty of evidence that shareholders often are loyal consumers. Retailer J.C. Penney Co., for example, found by studying data on credit-card purchases that stockholders on average visit a Penney's store twice as often and purchase double the amount in a year as a regular customer.

StockPower is the brainchild of husband-and-wife team Greg and Pam Allio, who founded the company in April of last year and serve as vice president of finance and vice president of marketing respectively.

The idea for the company dates to 1993 when Mr. Allio, now 38 years old, saw investors at Robert Mondavi Corp.'s annual meeting voice concern rather than anger about the winery's sinking shares. As a securities lawyer for the New York firm representing Mondavi, he had expected the angry questions institutional investors generally pose to executives of companies with problematic stock. Instead, the group was sympathetic to the company's difficulties -- and concerned that something might happen to perks such as discounts on wine and invitations to special tastings for shareholders.

That got him thinking about the value to companies of supportive investors who are also the company's customers. But the impetus for StockPower didn't come until the Web emerged and Mr. Allio outlined for several clients how they could use the Internet to sell stock online, communicate more effectively with shareholders and sell their products to loyal investors. The reaction from corporate clients was so strong and the availability of products to help companies execute his ideas so weak, that the couple decided it was now or never.

Revenue Sources

Within a matter of days, Ms. Allio, 35, quit her marketing job at Autodesk Inc., the San Rafael, Calif. computer-aided design firm, to start the company. Mr. Allio -- who initially kept his day job to ensure some cash flow for the couple and their two children -- joined at the beginning of this year. Mr. Hutchinson, a former president of the electronic-banking company BankLink Inc., joined in March to bring some hands-on experience in the financial-services sector. Thus far, StockPower has raised $6.45 million, including $5.25 million from venture capitalists, led by Mohr Davidow Ventures of Menlo Park, Calif.

StockPower ultimately will have several sources of revenue: one from licensing its proprietary software for online stock purchases; another from selling the consulting services required to get companies over the legal hurdles of setting up an electronic plan. (StockPower has a letter from the SEC stating that regulators have looked at its business plan and don't believe it violates any existing regulations.) A third source of revenue will be custom-building investor-related marketing programs for companies StockPower also will collect small transaction fees when sales of stock or other goods are processed through its site.

StockPower will face competition in the area of direct stock selling from other start-ups such as NetStock Direct Corp. of Bellevue, Wash. NetStock Direct, however, plans to aggregate electronic stock-purchase programs on its own Web site. StockPower, in contrast, will license its software to participating companies, although investors will be able to monitor their investments on StockPower's site.

Alex Stein, a principal at Gomez Advisors, a Concord, Mass., financial-services consulting firm, said StockPower may have a leg up because the company's plans to help turn investors into consumers should find support in corporate America. "Discounts, product information and stock ownership all help reinforce a direct relationship with the customer," he said. "On the Web, the company has the ability at a very low cost in real time to provide better information to the consumer than they can in the physical world. It's a way to get a shareholder in the door today to create a much broader relationship."

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