Grotech gains $80 million in offering Investor scores with Secured Computing

November 21, 1995|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Call it the Son of Netscape.

A huge boom following Friday's initial public offering by a Minneapolis computer security firm has resulted in an $80 million paper gain for Grotech Capital Group, as the Timonium venture capital firm surfed the wave of Internet investing and rode Secured Computing Inc. shares from a $16 offering to yesterday's closing price of $55.50.

For Grotech, which funded the company when it was spun off by Honeywell Inc. in 1989 and paid a total of $4 million for its 2 million shares, it was a big score even by the standards of the boom-and-bust venture capital business.

"It's been a good day," Grotech chief executive Frank Adams said. The firm still owns about 31 percent of Secured Computing and did not sell any of its shares in the offering.

The rush to buy the formerly obscure company, which made $1.5 million last year on about $15 million in sales, stems from Wall Street's rush to commercialize nearly anything connected to the Internet, the worldwide computer network.

In particular, Wall Street is betting that Secured Computing's Sidewinder computer security system can solve one of the biggest hurdles for commercial use of the Internet -- ensuring that consumers can safely use their credit card numbers to order electronically.

"We've seen a lot of the Internet companies take off the last couple of weeks," said Paul Merenbloom, a Baltimore County native now an analyst for Piper Jaffray Inc., the Minnesota investment bank that led the offering on Friday. "The whole Internet, as an investable idea, is under enormous pressure from Wall Street. There are just not enough companies to go around. [Secured Computing] had few if any peers because the field is just so new."

The run-up in Secured Computing shares rivals the frenzy sparked by Netscape Communications Corp.'s August IPO -- when shares of the company that makes software designed to make the Internet easy to navigate zoomed from $28 to $75 and then closed at $58.25 on its first trading day.

"No one could predict where the market would take an Internet related company," said Grotech partner Stuart Frankel, who said underwriters got an unexpected windfall when shares they bought from Secured Computing for $16 commanded $40 or more as soon as the public could get them.

He said the firm's backers -- including Grotech, a New York venture firm and an Iowa insurance company -- did not try to delay the offering in search of a better price because of uncertainty caused by the partial government shutdown last week and the desire to get the deal done before an expected slowdown in the IPO market next month.

"People think all the hot Internet stuff is in Palo Alto," Mr. Frankel said. "This was originated by Grotech, planned by Grotech and structured by Grotech."

Mr. Merenbloom said up to 40 companies are working on products that deal in some way with Internet security. But Secured Computing's backers insist that the company's technology, a complex series of algorithms called type enforcement, is tougher to break because it walls off small amounts of data in a nearly infinite array of electronic rooms that must be accessed separately, meaning even a successful hacker can only get at a small pool of information.

The system also sounds an alert when someone is trying to break in, cuts off the attempt and and allows the intruder to be traced.

The product, which sells for $30,000, has not yet cracked the on-line retailing market in any significant way, Secured Computing marketing vice president Craig Alesso said.

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