Wellfleet Partners, inc.

While on my summer vacation with my wife Paula, our tour guide explained how the ancient and majestic city of Rome was built surrounded by 7 hills and that all the roads thus led into the City. Zachary and I, who have been espousing the virtues of the internet and investing in new technologies that are transforming the business landscape, feel likewise that all roads leading to the Millennium will go through the World Wide Web. The Internet is spreading like wildfire; transforming society and markets at, not arithmetic, but geometric rates. The net, expanding at almost 50% per year, is becoming as American as the TV, car and/or cell phone. The personal computer, a mere 17 years old, boasts ownership in almost 50% of U.S. households and 85% of schools. Yet many investors ask, are the opportunities to invest in this industry still worth the risk? Does upside still exist?

There are two particular areas we are watching in which the Net continues to proliferate: Information and Purchasing. Of the latter, a perfect example of the emerging markets is that of the purchasing power of teenagers and the companies catering to them. According to NFO Interactive, a consumer research firm, nearly 50% of teenagers are online, 20% have already made purchases online, and they will spend up to $1.3 billion online by the year 2002. Web companies and retailers like the Gap are drooling about not only their current prospects, but expect these purchasing trends to be ingrained into this generation and the future ones of today’s shoppers. Chat sites that cater to teens are eagerly revamping to capture this marketplace, even issuing Web-only debit cards or "digital wallets" that allow teens without credit cards to make purchases.

The Net is also the most prodigious source of data and information the world has ever seen. New software is offering companies an unprecedented opportunity to collect and analyze information. Wired Firms are now armed with huge virtual warehouses of information to track and analyze customer and consumer trends. Web traffic is increasing daily and if these firms can provide a unique service or product, profits should follow. Many users are only now starting to "connect the dots" and as they become more attuned to the opportunities offered by the Net, so must the companies servicing them.

Recently I read a marvelous book called Uncommon Grounds, The History of Coffee and How it Transformed our World by Mark Pendergrast. Coffee has traditionally been the world's second most valuable export after oil and the most widely taken psychoactive drug. The book details and traces the bean's history from its discovery in Ethiopia centuries ago to the current Starbucks-led boom. Coffee became so popular by the end of the 19th century that a backlash, led by C.W. Post espousing the nefarious health ramifications of caffeine, occurred. But the bean and its effects were so popular and ingrained into the day to day lives of the population that shortly thereafter coffee became the most sought after and consumed beverage in the United States. By 1940, 98% of American families drank coffee. WW II added to coffee's mystique as millions of soldiers became addicted and by the end of the War Americans were consuming on the average almost 20 pounds of beans per year. Although for the past 50 years the popularity of the beverage has had its ebbs and flows, the bean is well cemented into the fabric of both the American and world cultures.

We see great similarities between the cultural adoption and ultimate acceptance of coffee as part of our day to day life to that of the internet. In a mere 6 years, the Web has become as commonplace to the average American as a "cuppa Joe". As time went on and the ramifications of the bean became better understood, its popularity wavered but its acceptance into the mainstream did not. So too the Internet! With the passing of each new day, week, month and year, the internet's popularity grows. The wild gyrations in valuations and price per share of the bellwethers and bellwether wannabes can be attributed to the enormous swings of opinions by prior supporters and new believers. There is heightened discrimination on the part of institutional and individual investors and many professionals think this summer’s shakeout was healthy. The chill from the slowdown in revenue growth (the prior gauge for internet company valuations) and increase in spending shows that the internet will be more competitive than prior thinking. But just as coffee is an integral part of our lives and that of society at large, so too is the web. The internet is here to stay.

Several of the key factors we look for when we either invest in, or raise money for emerging growth companies are intangibles such as human intelligence, brand recognition, quality of products and customer service. Thus, corporate value in the internet world is greatly determined through non-financial means. Current accounting methods do not take into account many of these intangibles and the term "goodwill" never assumed those new values created by web companies. As the importance and acceptance of these "intangibles" continue to grow, so too will the gap between "Dot Com" company accounting, financial statements and their market value. Since we are cognizant and respectful of this inherent contradiction in investing, we invest only in companies that not only maintain the aforementioned intangibles but also have a compelling business model, sticky site and/or a unique or valuable service. One company of particular interest is HomeworkCentral.com, an educational content aggregator. HomeworkCentral.com is the largest, most definitive and easy to use study site and pure knowledge resource on the web. With a potential audience of 52 million K-12 students, 15 million college students, 3 million teachers and endless concerned parents nationwide, the amount of potential unique visitors and E-commerce opportunities are endless. Its current 5 million page views and 250,000 visitors per month has been accomplished almost exclusively through word of mouth and without the raising of outside capital. With the needed venture capital to assist in funding its staffing needs, marketing and advertising, this single Internet knowledge community destination could generate revenues from advertising, corporate and university sponsorship, and E-commerce from sales generated by its online knowledge store. How valuable a commodity is education? In summary, a clearly attractive business model!

The next quarter should somewhat diminish at least the level of volatility we suffered through during the second tumultuous summer in a row. Investors are likely to carefully evaluate the interest rate trends and continue to hop from sector to sector trying to find the right stocks to be in as we approach the yearend. The improving global economy, continued low borrowing rates and minimal inflation has spurred the Feds to only modest increases in the interest rates to date and a "neutral bias". Although further minor increases are likely, the market has assimilated this trend and acted accordingly. As we get closer to December, the Y2K problem should substitute the interest rates and/or inflation trends as the primary issue on everyone's lips. No one knows what will happen but if history is our judge, in times of uncertainty investors expect the worst and act accordingly.

We are very pleased to announce our participation and investment in a recently completed major round of financing for DataRover Mobile Systems, Inc., a Sunnyvale, California based company specializing in handheld end-to-end data capture and access solutions for mobile workers in vertical markets. The financing was led by DotCom Ventures, a prestigious Silicon Valley venture capital firm. In addition we increased by approximately 50% our investment in Liveprint.com, a personal-publishing portal that allows the user to create, print and publish live on the Internet. The Company’s web site recently went live. The round we participated in was managed by Flatiron Partners, a well known New York City based venture capital firm. Finally, we have begun significant due diligence on three new potential investments: HomeworkCentral.com (see above), HallofSports.com and NetAttach, Inc. Each fulfills our profile for our serious investment consideration yet all very different. Of the latter two, the second desires to become the premiere online destination web site for sport memorabilia and collectibles and NetAttach is a developer of extremely high-availability, server-less network storage systems. For more information on all of the aforementioned companies or on Wellfleet Partners, please visit their web sites or feel free to call us at the office. We expect our web site which will have brief descriptions on all the companies we have invested in, or raised money for, to be live by the early fall. Until such time, and to our Jewish friends in particular, a happy and healthy New Year.