The Would-Be Man of Steel

SAN FRANCISCO -- Michael Levin, a steel-industry veteran seeking his dot-com riches, noted during his standing-room-only presentation to investors Monday that there probably wasn't anyone in the room who knew anything about the steel business. All this talk of mills, service centers, fabricators and Japanese trading companies probably won't interest you, he implied, but let's talk about the $700 billion global steel industry that e-Steel is going to revolutionize. Let me show you the money!

But hold on just one second. There was someone there who knows a little bit about steel. Me. I'm the equivalent of a steel-industry brat. When I was a boy, my family would drive by the steel mills in Northwest Indiana and we kids would hold our noses from the stink. "Do you know what that smell is?" asked my dad, who worked for no-longer-independent Inland Steel for almost 30 years. "Money" was the answer. I grew up and covered the U.S. industry's nearly final gasps for breath as a reporter in Chicago, whose last mill within the city limits (U.S. Steel's South Works) closed on my watch a decade ago.

You know where this is leading. This is one of those cornball tales about how the Net changes everything. Journalist leaves the Midwest to cover bits and bytes, silicon and software, and instead finds himself at a "technology" banking conference, BancBoston Robertson Stephens "Tech 2000," listening to a pitch about a steel company.

The pitch was for New York-based e-Steel, of which Levin is CEO. E-Steel is all about B2B, or business-to-business e-commerce. By becoming an exchange for the disparate industry participants mentioned above, e-Steel hopes to be the electronic middle man for a big chunk of the transactions in the steel business. Levin's got the attention of venture backers Bessemer Venture Partners, Greylock and Kleiner Perkins Caufield & Byers. (How appropriate it is that Bessemer's namesake, Sir Henry Bessemer, invented the technology that revolutionized steel more than a century ago). More recent investors and partners include Goldman Sachs, U.S. Steel, MSD Capital (Michael Dell's venture firm) and Japanese trading house Mitsui.

Seventeen-month-old e-Steel, which launched Web operations in September, has raised more than $100 million in total and has hired 120 employees.

Levin is short on additional financial information. That's the beauty of being a private company at an investment-banking conference. Just tantalize investors with the concepts. There'll be plenty of time to read the numbers when the initial public offering is filed. And given the crowd surrounding Levin when he stops speaking, that should be soon.

There's no doubt e-Steel is going to be something big. Levin has put together a management team of grown-ups, many with steel-industry experience. His partners also are for real: They include the newly public business-software firm webMethods, (WEBM Quote) a specialist in creating and managing images for Web sites. Levin says that five major alliances like the one with U.S. Steel are completed and four more are in the works.

But MetalSite, the closely held Weirton Steel (WS Quote) venture backed by Internet Capital Group (ICGE Quote), and other steel industry players, undoubtedly has its, er, sights on the same potential partners.

Still, the steel industry is nothing if not for real. Steel is a notoriously inefficient and frustratingly cyclical business, and a neutral electronic exchange that can facilitate buying and selling by auctioning off excess supply -- or demand -- stands to capture a meaningful piece of the pie.

"This isn't like chihuahua.com, and they tell you it's a $50 billion market but nobody can figure out how," quips Levin.

Still, the questions he fields are more critical than fawning. Won't e-Steel's take be tiny? Yes, says Levin, fees will range from 0.3% to 1.0% of the transaction size, though growth still can be huge. What if the steel industry decides to create its own "vertical" exchange the way the auto industry decided to do last week? "We're very focused," says Levin, implying that a focused company like his will perform better than an industry consortium.

E-Steel has the backing, the buzz and the blueprint for a successful company. Levin, by the way, has old-fashioned notions about making money and says that e-Steel will do so. But even if it does, will that be enough to enable this untested New Age firm to realize not only the demands of its deep-pocketed backers but of its public investors who see in e-Steel a future Net-stock darling? In other words, new tech or old -- it's all about the age-old smell of money.

Truth in Advertising

Robbie Stephens networking equipment analyst Paul Johnson knows the art of making fun of one's own organization. "Welcome to the Robertson Stephens e-everything conference," he said before a speech Monday on the companies he covers. "Today at lunch you'll probably be eating e-chicken."

Almost: For the record, it was e-fish.