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Free mail a hot property

In the wake of several high-profile acquisitions, the remaining players in the free email arena are being heavily courted by investment bankers.

In the wake of Hotmail being snatched up by giant Microsoft (MSFT) and Four11 being bought out by Yahoo (YHOO), some of the remaining players in the free email arena are being heavily courted by investment bankers.

One such company getting shoved into the spotlight by these recent deals is privately held community-builder WhoWhere, a venture-backed developer of Internet services and products such as free email.

WhoWhere's investors want the company to remain on track for an initial public offering, but the recent acquisitions of Hotmail and Four11 have attracted suitors.

Nonetheless, the company's investors are ramping up their schedule for an initial public offering, given that the field has been cleared of two competitors that might have stolen some attention away in the IPO market. Analysts say WhoWhere may be able to raise more than originally planned, given that Hotmail and Four11 are no longer going for an IPO.

WhoWhere's investors include Venrock Associates, the venture capital arm of the Rockefeller family, and VantagePoint Venture Partners. In November, WhoWhere completed its second round of financing of $10 million.

While the company may not immediately need the money from a public offering, timing is important when approaching Wall Street.

Tony Sun, managing general partner at Venrock, said the acquisitions of Four11 and Hotmail may move WhoWhere's IPO forward.

"Suddenly, the investment bankers see the strategic value of the business," he said. "The acquisition values that those others got show what people think this business is worth. And that moves forward the IPO process."

WhoWhere isn't alone in is recent popularity. Scott Chasin, chief technology officer at USA.NET, said the Hotmail deal was "extreme validation that Web-based email is here to stay," adding that it has made everyone in the space more valuable.

"The big companies wait for the little guys to figure it out, and then they swallow us up," Chasin said. "We have opportunities knocking on our door, but we don't want to do anything prematurely. We feel good that we have something that is worth value."

Analysts said the attention being given to a couple of companies has created a scarcity value in the remaining players.

"Companies suddenly feel like they need to have [free email] services, and they either have to buy in or build their own," said Andrea Williams, an Internet analyst at Volpe Brown Whelan. "Timing is affected by market conditions and what your competitors are doing. Other deals draw more attention to them and there wasn't a lot of attention focused on them before."

WhoWhere's original plan was to go forward with an IPO in 1998 or 1999, and the company plans to be profitable by sometime later this year, said Dale Fuller, the company's chief executive. The maker of Web-based communication tools has a user base of about 7.5 million for its free Web-based email, personal home pages, and directory services.

"I was surprised at some of the numbers that we heard for the acquisition of Hotmail," Fuller said. "Hotmail wanted to go public, and an IPO is where we are focused, too. This is a great market to go public in, but if a company came along and made an offer we can't refuse...well that would have to be something we'd consider."

Sun said that WhoWhere has had many conversations with a variety of companies regarding an acquisition, but cautioned that it is counterproductive to count on an acquirer coming along.

USA.NET's Chasin said the company has been focused primarily on its technology and did not have a time frame for a public offering.

"We're getting new subscribers everyday. This space is getting exciting," he said. "Everyone is lining up to go the dance and everyone is looking for a dance partner. We have been contacted by numerous companies looking for partnerships."