Gone Public -- The Excitement Is Tangible, The Riches Virtual As Another Seattle Start-Up Rolls The Dice

Tuesday morning, somewhere between her Capitol Hill home and her Pioneer Square office, Lisa Wolff became a millionaire.

Like most of the 100 employees at FreeShop.com, Wolff, 30, missed the magic moment when the Seattle Internet company's stock started trading for the first time.

It didn't matter that she and the employees were late. For FreeShop.com, the party has just begun.

With champagne, doughnuts and party poppers, employees celebrated the initial public offering of their stock. By the end of the day, the company was worth $203 million, and employees and directors went home roughly $8 million richer than when they came to work.

Software development manager Adam Wolf whooped and sprayed champagne at his co-workers, christening the newest crop of Seattle's young and rich.

"I don't think I've ever had champagne before coffee," Wolff said laughing as she sipped from her plastic flute.

The story is becoming absurdly routine.

A swarm of other area Internet companies is raking in cash from public stock offerings.

Last week alone, FreeShop.com led off a parade of four area companies that launched stock offerings. Some fared better than others. The value of Seattle-based InterNap Network Services' stock nearly tripled by the end of its first trading day. ShopNow.com, a Pioneer Square neighbor of FreeShop.com, closed just 68.8 cents above its initial price.

In the days and even hours ahead, FreeShop.com's stock price would go up, down and nowhere, subject to the whims of Wall Street. Whether investors will continue to back the company, which runs a Web site compiling free offers for consumers, remains to be seen. In any case, employees, like Wolff, won't be able to to sell any of their stock until after a six-monthwaiting period.

By the end of the week FreeShop.com, which got its start in 1994 and hasn't yet turned a profit, was worth $XXX million. To put things in perspective, the 150-year-old Pope and Talbot wood products company has a market value of about XXX million.

But none of that mattered Tuesday morning. FreeShop.com was achieving a milestone that some doubted it could ever reach. With a strong showing in the first few hours of trading, employees were celebrating this weird alchemy that has turned years - or for some, just months - of sweat equity into gold.

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FreeShop.com's journey to Wall Street followed a twisted path.

The company began as a division of a larger online software retailer started by Tim Choate and John Ballantine. That company, Online Interactive, was bought out in 1997 by Connecticut-based Micro Warehouse. FreeShop was spun out to survive on its own.

The idea was to provide an Internet-based alternative to the mass mailings that companies send out to potential customers. Some will respond, but most recipients will throw the mailings away.

Another executive took over as Both Choate and Ballantine stayed on with Micro Warehouse as vice presidents, keeping board position of FreeShop.

But in its early years, FreeShop was stumbling. It didn't have enough clients, enough visitors to its Web site or enough money to grow. Choate, as a board member, stepped in to write the payroll checks for employees in January 1998.

Three months later, Choate, now 34, took over as chief executive to head the company that he had founded. "It was this close to being gone," he said.

The company needed to grow big fast. Choate focused on everything from the technology to marketing, lending guidance and pushing harder. He added more employees and made loans out of his own account. He scoured the country for more financing.

And he gave his staff his "hockey stick speech." A chart of a company's sales should look like a hockey stick - fairly flat in the beginning and then rapidly rising. He pointed to the flat portion along the blade and said,"This is where our business is today." He traced the hockey stick's shaft and said "This is what a successful Internet business looks like. Either we're going to achieve this, or we're all going home."

FreeShop.com found a financial backer in Fingerhut, the a Minnesota-based catalog company. Fingerhut committed $21.4 million and now owns about a third of FreeShop.

Last Christmas, the staff gave Choate a signed hockey stick. He turned around and pulled out hockey sticks for all of them.

Today, FreeShop.com offers more than 1,000 free samples and trial offers from magazines, catalogs, product manufacturers and other companies. Internet users willingly go to the site, select free offers from companies or products that interest them, and submit their personal information, giving the companies a way to directly reach those customers. FreeShop gets $1 for each consumer it sends to the various companies. It also sells advertising on its site.

Like many Internet companies, FreeShop.com still loses millions of dollars a quarter. But sales have climbed to $2.1 million for the six months ended June 30, 1999, compared to $429,000 for the six months ended June 30, 1998. The company is creeping up the shaft of the hockey stick.

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FreeShop.com's office bore all the usual trappings of a party Tuesday morning - balloons in red, black and gold - company com colors; champagne chilling in tubs of ice; cinnamon rolls, pastries and fruit laid out on a table; even an espresso bar hired for the occasion.

But instead of music and dancing, the "entertainment" consisted of a computer screen with flashing numbers, tracking the bidding and selling of shares of FreeShop.com. Most, including Choate, didn't know how to read the screen at first.

They soon figured it out. For Choate, a $1 rise in the stock price meant roughly another $1.8 million in personal wealth.

Choate toasted his employees, announcing that at that point, the stock was up 25 percent. He quickly added "But we're not going to watch it every morning. And I promise I'll obey that."

For Choate, the wealth that comes with his company's IPO doesn't mean much change in his personal life. He and his wife were millionaires before Tuesday. By the end of the week he was worth XXX million more - added wealth that means he and his wife, her name, can concentrate on philanthropic and community improvement plans they have, including starting a center to train teachers on incorporating music into education.

The money takes on added importance for employees such as Shannon Quinby, a 26-year-old sales representative who joined in June. Like most of ShopNow.com's 107 employees, she's not a millionaire - yet. Still, the lure of stock options is so "enormous" she chose FreeShop.com over other employers. "The potential is so great," she said.

Especially considering that employees pay as little as 50 cents a share when they exercise their stock options. On average, employees pay $5 a share.

But like the others in the room, she hasn't mentally spent the money. With six months before employees can tap any of their stock, the wealth is all on paper.

For now, the dreams for Quinby and other ShopNow.com employees are practical. Maybe a new car - not a Porsche, but a Volkswagen bug - said Adam Wolf, the software development manager. He's made most of his decisions, including the one to join FreeShop.com, on practical matters. The office is within walking distance of the ferry he takes each day from Vashon Island.

Maybe a down payment on a house, said Bill Byrne. Who knows? "I don't count my chickens before they hatch," Byrne said. "One of our goals is not to become too distracted. It would be easy to get caught up in the success today but our obligation is to our customers and clients."

About the most adventurous idea came from Michael Smith, the 31-year-old manager of information systems. Twice before, he worked for other software companies hoping to do what FreeShop.com did. Both failed.

At least some of his stock will go toward a three-week vacation in Brazil.

By the end of the day, the stock closed at $13.562, up $1.562 from the initial price of $12. Not a blockbuster performance, but still respectable.

"As much as I'm having trouble not watching," Choate said, "wherever it ends today isn't as meaningful as where it ends in six months or a year."

Helen Jung's phone message number is 206-464-2742. Her e-mail address is: hjung@seattletimes.com ------------------------------- The parade to Wall Street

Tuesday

FreeShop.com - FSHP

Headquarters: Pioneer Square Employees: 107 What they do: Run a Web site of free offers from catalogs, magazines and product manufacturers. The idea is to provide a more efficient direct-marketing tool for companies to connect with consumers interested in their products. IPO price: $12 a share Total raised: $38.4 million High: $19.50 Low: $11.375 Closing price on Friday: $11.625

Wednesday

InterNap Network Services - INAP

Headquarters: Downtown Seattle Employees: 300 What they do: Offer companies direct connections onto the Internet backbone, meaning faster loading times and fewer chances to lose information during transmission. IPO price: $20 a share Total raised: $190 million High: $73 Low: $39 Closing price on Friday: $50.25

Wednesday

ShopNow.com - SPNW

Headquarters: Pioneer Square Employees: 305 What they do: Provide software and handles the logistics of running Internet storefronts for companies. IPO price: $12 a share Total raised: $87 million High: $17.50 High/Low: $10.938 Closing price on Friday: 11.875

Friday

Vixel - VIXL

Headquarters: Bothell Employees: 180 What they do: Develop computer data storage systems IPO price: $18 Total raised: $77.4 million High: $53.50 Low: $41 Closing price on Friday: $41.688