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NetObjects execs back the farm

Top managers at the Internet software toolmaker are taking a stake worth more than $1 million in their own company.

The top management at NetObjects is showing its confidence in the company by taking a stake worth more than $1 million in the venture-backed Internet software toolmaker.

The privately held firm will announce tomorrow that chief executive Samir Arora has invested $1 million in the business to help fuel its growth as an independent software company. NetObjects founders David Kleinberg and Sal Arora participated in the investment, raising the total stake in this round to more than $1.2 million.

"As a CEO, I believe you should be really be tied strongly to the success of the company," said CEO Arora. "Being able to own more shares of the company says I believe in this company's future, and it increases my stake in the ownership of the company."

Analysts agree, especially for a company that has long been open about its intent to someday go public, but NetObjects has not set a deadline for when it hopes to make that happen.

"If Arora is putting his own after-tax money into the company, then he obviously must believe it is going to be worth more money eventually," said Cristina Morgan, managing director of investment banking at Hambrecht & Quist. "The company has been very vocal that it wants to do an IPO." The personal stake should give investors confidence because the top management and the founders are "not just putting in time and energy and sweat, but also putting in cold hard cash," she added. "Most try to use OPM [other people's money]."

However, the stake would not be a major determinant of whether an institutional investor will invest in the company, noted Morgan. "The ownership profile is interesting, but what it really comes down to is the revenue growth, products, and potential."

While not in search of additional funding right now, Arora said the company has to keep its options open.

"You can go public, sell the company, or keep it private," he added. "You have to be open to all three options, but it would be rather unlikely that we would have any reason to sell NetObjects."

This latest round brings NetObjects' total financing to $15 million in three rounds of funding, not including an undisclosed investment from IBM last year. Sources have rumored that investment to be about $100 million.

The latest round follows a $1.5 million investment by the founders last July and Big Blue's backing in March 1997. Samir Arora had invested $1 million and contributions included Kleinberg, Sal Arora, and Clement Mok.

The Web software company shipped the latest version of its flagship product, Fusion 3.0, in April. Arora said that "within this quarter" it will release a Macintosh version of that product. Fusion is a Web development program for building Web sites.

Other NetObjects investors include AT&T Ventures, Norwest Venture Capital, and Venrock Associates.