The Last Boutique

With investors clamoring for every kind of tech stock and a seemingly endless number of venture-backed companies itching to go public, February 1999 seemed like an ideal time to launch a new investment bank. And Thom Weisel seemed like the perfect guy to do it.

For 27 years, Weisel had served as CEO of Montgomery Securities, which together with Hambrecht & Quist and Robertson Stephens formed the core of San Francisco's small but prestigious investment banking community. These so-called boutique banks focused on the emerging tech companies that Wall Street long had viewed as too small to be worth the trouble. But by the late 1990s, as tech boomed, all three firms were snapped up by international commercial banks.

Weisel and his partners sold Montgomery to NationsBank in 1997 for $1.3 billion (Weisel's take was reportedly $120 million), but relations between Weisel and NationsBank chairman Hugh McColl quickly soured. Finally, in September 1998, Weisel walked out - followed by more than 100 employees - and launched Thomas Weisel Partners.

With $165 million in capital and a blue-chip advisory board that included Silicon Valley legal titan Larry Sonsini and erstwhile Yahoo CEO Tim Koogle, TWP quickly became a "must have" on the prospectus covers for technology IPOs. It announced its presence in M&A when it advised Yahoo on its $4.6 billion acquisition of GeoCities just three months after it launched.

The speed of the firm's growth was unprecedented: $186 million in revenue in its first year and $492 million in its second. Weisel's belief that there was still room for a classy tech boutique in an age of financial conglomeration appeared to be borne out.

Today, of course, the picture is rather different.

As of June of this year, TWP had completed nine equity offerings and six M&A deals, versus the 81 equity deals and 46 M&A transactions in 2000. Layoffs - or "performance-related terminations," as the bank prefers to call them - have begun.

Weisel insists his business model is rock solid. His research team's deep industry knowledge is, he says, a boon to its institutional sales, and brokerage revenue is up 48 percent. Weisel insists that M&A activity is about to turn the corner. And the partnership's compensation structure helps Weisel keep costs in line.

"We sized the firm to be between $800 million and $1 billion in revenue," Weisel says. "Unless the world collapses from here we're going to stick with these 800 people." However, with just $214 million in revenue for the first half of this year and little hope of a quick tech rebound, by Weisel's own metrics the firm should be much smaller.

"Massive layoffs will be the only way they can keep the lights on," snipes one rival.

But Weisel - known to be charming and generous in public, headstrong and difficult in private - is not to be underestimated. The 60-year-old banker surrounds himself with strong, loyal executives cast in his own image. Many are world-class athletes like Weisel, a five-time national speed skating champion in the 1950s. They share his conviction that boutique banks focused on IPOs, M&A, private equity and trading - at the expense of other services like fixed income - still have a place. The tech boutiques all sold out to larger firms precisely to gain access to other services. If nothing else, the tech banking world can be assured that Thom Weisel isn't eager to do that again.