The Blank-Check Business Model

By Michael Lewis

(Michael Lewis, the author of ``Liar's Poker'' and ``The New New Thing,'' is a columnist for Bloomberg News. His opinions don't represent the judgment of Bloomberg News.)

New York, Jan. 25 (Bloomberg) -- An interesting aspect of the Internet boom is the way it has transformed the idea of the company. A company used to be a group of people who organized themselves for fairly well-defined tasks. The U.S. stock market now indulges a new, looser definition. A company is now a group of people who raise capital to do whatever they want to do.

The biggest and most respectable new companies, such as Amazon.com, routinely surprise investors with some new activity they intend to spend money learning how to do. If you asked an investor in any of several hundred Internet companies what, exactly, his company would be doing or claim to be doing six months from today, he would say, if he were feeling honest, ``I have no idea.''

The reason usually given for the new tendency of companies to morph overnight is that they operate in a fast-changing environment. A company should not be expected to predict what it is going to be doing in six months because six months suddenly feels like a lifetime. Who can predict what the world is going to look like in six months?

This may be true. But it is also true that once an Internet company is considered established, or committed to a line of attack, it loses its allure. It leaves itself open to the sort of hard analysis Internet companies strive to avoid. To be desirable an Internet company must be ever so slightly unknowable. It must remain forever in a state of pure possibility.

A Bloomberg user recently pointed out what must be one of the purest examples of pure possibility, an Internet company called NetJ.com Corp. NetJ.com is smaller than most of its Internet cousins. It has a market capitalization of a mere $22.9 million. Still, its stock price has soared -- up seven-fold to $3.50 -- since the middle of last year. Six months ago it offered a five- for-one stock split.

`No Plans'

The only hint that NetJ.com is in any way different from the general run of Internet companies is Bloomberg's description of it: NetJ.com currently has no business operations.

This raises an obvious question: how can a business worth $22 million have no business operations? Assuming that the Bloomberg machine must be mistaken I went to the documents filed by NetJ.com with the Securities and Exchange Commission. There I found the following confession:

``The company is not currently engaged in any substantial business activity and has no plans to engage in any such activity in the foreseeable future.''

That sentence is a nice example of businessspeak gussying up a simple fact. Translated into English: We do nothing and we intend to continue to do nothing.

This in itself is unremarkable. Many people do nothing and intend to continue doing so. What distinguishes NetJ.com is the spirit in which it does nothing, which is astonishingly similar to the spirit of many new companies widely viewed as successful.

NetJ.com began life as NetBanx.com, which hoped to collect bad debts for doctors. That didn't work out. So the company gave up, and went into another line of work: searching to acquire or merge with another company that actually does something. For this it claims to be well-suited: ``Management generally, and Mr. Stifford (the founder) in particular, has substantial experience and expertise with analyzing prospective business endeavors.''

Keeping New

You might wonder why a company that actually does something would care to merge with one that does nothing, even if it has a gift for doing nothing. You are naive. The mere fact that NetJ.com is a public company, with a share price that goes up and down every day, apparently makes it potentially desirable to a private company that wants to avoid the hassle and the wait involved in going public. NetJ.com offers itself as a kind of bandwagon, albeit one without wheels.

Such an approach to business would have been risible just a few years ago. Maybe it is even now. Still, it is hard to say what distinguishes NetJ.com from most Internet companies. Certainly not its business model -- the investment bankers' term for the widespread practice among Internet companies of making it up as they go along.

A lot of putatively successful Internet companies raise capital first on the pretext of creating one kind of business, only to deploy it in the creation of another. Netscape invented this approach, pretty much by accident. (Microsoft took away its original business.) Others now do it more deliberately. The trick, as one prominent Internet CEO told me, is to keep yourself new. You have to present the stock market with a face-lift every three months.

Competition

That is the beauty of NetJ.com. By doing nothing it has avoided ruling out the possibility of not doing something else. As the company explains in an SEC filing, ``The company does not intend to restrict its search (for a partner) to any particular business or industry.'' Its list of possible ventures includes, but is not limited to, ``high tech, natural resources, manufacturing, r&d, communications, transportation, insurance, brokerage, finance, and all medical related industries.'' Not even Amazon.com leaves itself open to so many different opportunities.

Of course there are risks here. Some of them are stated pretty clearly in NetJ.com's filings with the SEC. The company has $127,631 in accumulated losses -- tiny by Internet standards. It has ``extremely limited assets'' and ``no source of revenue.'' In fact, it has so little money on hand that if it wanted to do anything, such as file to sell more shares in itself, it would need to ask its management consultants to advance the money.

But that is not the telling passage of the risk-disclosures section in NetJ.com's confessional. The telling passage is the one that describes, incredibly, the danger of competition. You might think a company that does nothing, and which is looking to merge with a company that does something, would have the field to itself. But no! As the filing explains, ``Management believes that there are literally thousands of `blank check' companies, many of which have substantially greater financial and management resources.''

Indeed, there are.

)2000 Bloomberg L.P. All rights reserved.



-- Possible Impact (posim@hotmail.com), January 27, 2000

Answers

Thank you P.I.

That says it all!

-- James (brkthru@cableone.net), January 27, 2000.

Hi PI-- What a hoot. Unbelievable.

-- Pam (jpjgood@penn.com), January 27, 2000.

This sounds like they are putting little bubbles attached to the BIG bubble. UNBELIEVABLE !!!!

-- Vinny Longo (tippie1@home.com), January 27, 2000.

Vinny - this is exactly what bubbles do in a bath, so it's a damn fine analogy.

"An undertaking of great profit, but nobody to know what it is" -- company prospectus, during the South Sea Bubble (from memory, so the words may not be 100% accurate).

-- Nigel (nra@maxwell.ph.kcl.ac.uk), January 27, 2000.

Nigel -

Quite close. From History House: The South Sea Bubble

...For carrying on an undertaking of great advantage; but nobody to know what it is.

From the same site:

...While the directors of the [South Sea Trading] Company insisted profits were just around the corner, and even outbid the Bank of England for an additional #31,000,000 of government debt in 1719, one dreary day in September 1720, no one wanted to buy stocks. All around there were shouts of "sell, sell!" With no buyers, the poor bastards who had bought stock for thousands of pounds could hope to unload it for only a fraction of the price they had paid. The few that figured this out before it happened made out like bandits (One Alexander Pope comes to mind). An entire generation lay in pieces. A pamphlet published in Boston in 1721 notes:

"..many poor Families have been ruined, brought to Poverty, and turned beggars. The Trade of the City of London, one of the finest in the World, hath been very much shortned, few Ships have been built, or fitted to Sea, during the Reign of the South-Sea Company."

The rest of the country languished in misery and poverty. The investors were equally split between two strategies: (1) buy stock buying stock with no real value (i.e., walnuts from Virginia) hoping to sell it at a higher price to stupid persons, and, of course, (2) plain stupidity. [We here at History House would like to note that while its success rate is low, stupidity is probably the most-often used strategy in humanitys playbook.]...

-- DeeEmBee (macbeth1@pacbell.net), January 27, 2000.

Thank you for the great link DeeEmBee, and Nigel for making the association. The 'South Sea Bubble story' really made my day!

-- Possible Impact (posim@hotmail.com), January 27, 2000.

If i told you how much a dot com was paying afriend of mine---to work from home!!!--, you'd have a heart attack!!!

-- INever (inevercheckmy@Onebox.com), January 27, 2000.

INever, may I have the name or URL of that particular dot.com? hehe

-- Kyle (fordtbonly@aol.com), January 27, 2000.