Goldman Sachs could be wrong about Michael S. Levin and E-steel. So could Bessemer Venture Partners, GE Capital, Kleiner Perkins Caufield & Byers, MSD Capital (Michael Dell’s venture arm), Vulcan Ventures Inc. and Greylock Management Corporation. Some of the world’s most highly esteemed strategic investors could all be throwing away their millions.
But if they are not-and such wise men can’t all be wrong, can they?-Mr. Levin could turn out to be a latter-day Andrew Carnegie, a steel magnate in a post-industrial world.
Mr. Levin, the 49-year-old founder and chief executive of E-steel Corporation, is trying to transform the $700 billion global steel industry into one of the world’s largest electronic business-to-business marketplaces. In 1998, he established his on-line exchange for buyers and sellers of steel, and he plans to take it public later this year. He stands to become a very wealthy and significant man.
Steel, that vintage source of great American wealth, is not very sexy these days, but B2B (that’s new economese for business-to-business) is. The stock market likes on-line businesses that cater to other businesses (as opposed to consumers). In fusing the two, Mr. Levin has begun making a name for himself in the grand tradition of the stealth New York businessman-by aspiring to glamour in an unglamorous line.
This would-be king of steel works in a drab, makeshift office near Madison Square Garden, with nothing on the walls and a rather bland view of a Holiday Inn. On a recent Friday evening, he sat there behind a glass-topped desk, dressed in a striped open-collared shirt, tan wide-waled cords, Docksides and wool socks, and told his fund-raising tale-of how a steel industry veteran convinced some fancy venture capitalists to invest over $100 million in his dot-com business.
Last spring, Bessemer Ventures approached E-steel to discuss investment possibilities. Mr. Levin gave his E-steel spiel and asked the money men if they had any questions. “They said, ‘No questions, we’re going to be your venture capital lender.’ So that was that,” recalled Mr. Levin. Then he talked to executives at Kleiner Perkins in Silicon Valley and Greylock in Boston. They signed on right away.
“I became a mini-legend,” he said. “Not only did I get Kleiner Perkins to invest in us based on my presentation, I made only three presentations and got three investors. Three up, three down. That is a record, especially of the caliber we’re talking about. I think we have three of the best venture capital firms in the world.”
E-steel is basically a marketplace for companies looking to buy and sell steel: hot rolled, cold rolled, coated, plate, tin mill, rebar, scrap, pipe, whatever. It operates as an exchange. Participating companies log on, search for suppliers and start negotiating.
Since the E-steel exchange opened in September, 428 fabricators, 1,591 companies, 91 steel mills and 336 service centers (in 69 countries) have gone to http://www.e-steel.com to buy or sell steel. Mr. Levin is hoping that by 2005 E-steel will be handling 30 percent of the industry’s transactions. Right now it has a sliver of that. The company charges between 0.3 percent and 1 percent of the value of each transaction done over the exchange. (The company’s main competitor, Pittsburgh-based Metalsite, is mostly owned by Weirton Steel Corporation and charges 1 to 2 percent.)
Thirty percent of $700 billion is $210 billion. Skim a percent or so off of that and you’ve got a pretty good business. An old economy business: There’s profit in it.
Mr. Levin lives in a downtown loft with his wife, who is French, and three children. They go up to their Dutchess County farm when time permits. He says he likes “dangerous activities” and prides himself on having skied runs in the Chugach Mountains in Alaska that “no human had ever done.” He is an offshore sailor and raced in the Admiral’s Cup in a Doug Peterson-designed 43-foot sloop. He said he is also a former dirt bike racer, expert rock climber and mountaineer. He doesn’t get out much these days, but these credentials are clearly important to him. He has managed to reconcile his daredeviltry with his entrepreneurial undertaking. “The point is that people who do like this sort of thing tend to be happier when they are living without a safety net,” said Mr. Levin. “When you’re sailing into a storm offshore in a boat, everybody has to do their job correctly or everybody is in trouble.”
Mr. Levin grew up in Westchester County. He said he doesn’t really keep in touch with his family. “I didn’t grow up exactly on my own here, but most of my life I created myself,” he said. While still in high school, he took a summer job in London with Titan Industrial Corporation, a steel company. There he met Titan executive Walter Marias, who he recalls as a “James Bond leading man” type who carted him out to a country house, took him shooting and introduced him to rich friends’ daughters. “I remember spending one week’s salary on a Coca-Cola at Annabelle’s-the nightclub in London,” he said. “I came to think of the steel industry as a very glamorous place.”
He returned to the States, attended the University of Wisconsin and Harvard business school, then went back to work for Titan. But soon he was soon sent to Africa as a tin plate salesman to “learn humility.” He worked in Ghana, Nigeria, Senegal and later all over Asia and Europe. He advanced to steel trader to vice president to president and finally bought the company in 1994. He still owns Titan, although he is no longer involved in its operation.
For over three decades, Mr. Levin has worked in nearly every aspect of the steel industry-global, domestic, manufacturing, distribution, trading-yet he has often found the industry a little too tame. “I always asked myself why the industry isn’t as dynamic as it might be,” he said. He dreamed of ways to improve “the foggy and inefficient world of relationships and faxes and messages not returned and people writing orders on cocktail napkins.”
Finally, in the spring of 1998, Mr. Levin formed E-steel and began to assemble a team and define the technology that would allow steel to be bought and sold in a secure electronic marketplace. Then he raised the venture capital-three up, three down-which in turn begat more investment, including a partnership, announced on Feb. 24, with U.S. Steel Group.
Mr. Levin is especially fond of the “poetic” notion that the Bessemer Ventures money descends from America’s great steel tycoon, Andrew Carnegie. (Sir Henry Bessemer invented the furnace for the mass production of steel, the device Carnegie and his partners, including Bessemer founder Henry Phipps, relied on to build their fortunes.) “The old steel industry made the money, created the pool of investment funds that went into E-steel and is now going create a new way for the steel industry to move forward,” he said. “There is a certain elegance to it.”
Among the 100 employees in the New York office (E-steel also has small offices in Chicago, Pittsburgh, Singapore and Brussels) Mr. Levin figured he has 300 years of steel industry experience. While Mr. Levin said the company will go public this year, he wouldn’t say when. He said he doesn’t know what the company will be valued at, but said that other people have estimated its worth somewhere around $600 million. And based on the trend of public offerings of B2B companies-which he calculates at “six to 10 times the late-stage private financial”-Mr. Levin and other stock holders could be very rich, very soon.
“I’m not predicting valuation and I’m not saying when we’re going to have an I.P.O. I’m saying that based on other people’s experience you get that type of step up,” he said. ” You figure it out. Even reporters have calculators.”
“We’re a very, very strong company with a very strong mission in a $700 million marketplace with the absolute best list of clients of any B2B,” he went on. “What we’re doing is really big, because the steel industry around the world is deciding there’s another way to do business.”
It was early on a Friday evening, and Mr. Levin was due at his son’s birthday party. He had been working seven days a week for months. “I’m almost out of hyperbole,” he said-but he wasn’t quite out of it yet. “This is as important as giving up the horse-drawn carriage and jumping into a Model T,” he said, “or saying we don’t need scribes copying onto parchment-we have the printing press.”
He tried to summon his assistant. “Hello?” he called out. “Hello?” The assistant appeared, and he gave her some things to do.