Wall Street firms are getting jumpy as more top analysts develop web feet

Tim Weller is Wall Street’s worst nightmare. After six years of toiling at Donaldson Lufkin & Jenrette Inc., he left the New York securities firm in August to join Internet start-up Akamai Technologies Inc. as chief financial officer.

On Oct. 29, Akamai went public and posted the fourth-biggest opening-day percentage gain ever for a U.S. stock, soaring nearly sixfold to $145.

As of last week, it was trading around $180, giving Mr. Weller, 34, an equity stake in Akamai worth some $190 million. “On paper, he made a brilliant decision,” says Charles Lax, general partner at Softbank Capital Partners, who is familiar with Mr. Weller’s move.

Investment banks aren’t likely to be as laudatory. Internet research analysts are increasingly making similar decisions, jumping to web ventures to gain instant riches from initial public offerings or get a hands-on role at the next Amazon.com or Cisco Systems.

While investment bankers and analysts have long defected to rival securities firms, the web poses a more sweeping threat to retention on Wall Street.

To compete with the dot-coms, investment houses are giving Internet analysts huge raises even as they struggle to assemble complete teams of researchers with enough depth to cover the fast-growing sector.

“In the past, analysts could only make hundreds of thousands of dollars,” says compensation specialist Alan Johnson, who advises many of the top Wall Street firms. “Now they can make well into the millions.”

Analysts who cover the Internet have become stars because of the explosion of web IPOs and in particular because of the key role these individuals play in attracting underwriting business. Companies will often choose an investment bank to handle IPOs based on the stature of its analyst.

Mary Meeker, for instance, has helped Morgan Stanley Dean Witter & Co. become the dominant player in Internet investment banking because of her reputation as the premier analyst in the sector.

More recently, though, an increasing number of top guns have used their newfound celebrity to vault into careers offering richer rewards. Among those who have turned on-line entrepreneur or venture capitalist is Hambrecht & Quist’s Danny Rimer, who earlier this month joined the Barksdale Group, an Internet-focused venture capital firm launched by former Netscape CEO Jim Barksdale.

Another is Credit Suisse First Boston’s Bill Burnham, who became a general partner in Softbank’s new $1.2 billion Internet venture capital fund. General partners in funds typically earn 20% of investment profits, so the upside potential is huge.

Perhaps more surprising is the exodus of less prominent analysts, such as Mr. Weller, who covered telecom and Internet stocks during his tenure at DLJ. His huge payday at Boston-based Akamai, whose technology helps speed web page delivery, has Wall Street buzzing.

“There’s a tremendous amount of demand for CFOs and other positions because of the volume of Internet IPO activity,” says Fred Moran, who heads the Internet media and communications group at midtier investment bank Jefferies & Co. in Los Angeles.

Mr. Moran, a three-time Wall Street Journal All-Star Analyst, has resisted offers to join web companies. But he did get himself a pay hike by defecting from ING Barings in September to launch Jefferies’ Internet practice.

Wall Street firms are digging deeper to keep web analysts from getting dot-com fever.

Top analysts, like Morgan Stanley’s Ms. Meeker and DLJ’s Jamie Kiggen, are believed to command as much as $5 million a year. Even junior analysts at large investment banks are said to have hit the $1 million mark, doubling last year’s pay levels.

At the same time, many Wall Street firms are scrambling to add Internet expertise. With some 250 dot-coms now public, firms need more than one or two people to cover the field. Firms are hiring from outside or converting analysts from other areas to specialize in narrower categories, such as e-finance and e-commerce. Companies say this also helps insulate against the departure of a top analyst.

“What’s happening is a change from the single star analyst,” says John Rohal, director of research at BancBoston Robertson Stephens Inc. In October, the firm lost Internet guru Keith Benjamin to venture capital firm Highland Capital Partners.

Robertson Stephens now has 14 analysts covering the Internet — up from seven a year ago — which lessens the impact of losing a name like Mr. Benjamin.

Wit Capital Inc. expanded its analyst roster overnight when it acquired SoundView Technology Group Inc., a banking boutique in Stamford, Conn., this month. The move adds 30 tech industry analysts to the online investment bank, more than tripling its roster to 44.

Ron Readmond, Wit’s co-CEO, believes that the company — as a public dot-com that’s also an investment bank — offers analysts a unique situation. “Providing the opportunity to participate in an Internet investment bank is the best of both worlds,” he says.