In 1999, Thomas Weisel and some colleagues from Montgomery Securities launched a full-service investment bank focused on helping young Bay Area technology companies go public. During the ensuing dot-com boom, a virtual pipeline ran from the heart of Silicon Valley straight to Thomas Weisel Partners Group LLC's San Francisco headquarters, with early clients such as high-profile Internet startups Pets.com, VarsityBooks.com and Drugstore.com.

Unfortunately for Weisel, most of these hits soon turned into some of the era's biggest bombs. The bank's decline was swift. Business bottomed in 2002, and since then it has moved to enter new industries, such as healthcare and consumer businesses, while reducing its dependency on underwriting initial public offerings.

In 2006, Weisel profited from a new boom in mergers and acquisitions to complete its own IPO. Last year, meanwhile, the company took its boldest step yet away from its tech focus, acquiring Canadian investment bank Westwind Partners Inc., which specializes in energy and mining. Despite such shifts, Weisel remains on the bubble. The company's stock trades for roughly $3.10 per share, down from a peak of $23.40. Annual revenue is down from a high of $486 million in 2000 to $234 million.

The bank has laid off staff in a move to align costs with the downturn in its business. More broadly, the financial industry is in chaos, while the U.S. economic recession is throttling the brokerage, advisory and asset management business that investment banks like Weisel depend on.

In the face of such challenges, Lionel Conacher's upbeat assessment of Weisel's prospects sounds a little incongruous. As the bank's president and chief operating officer, Conacher, 46, says the financial crisis that is remaking the investment banking landscape represents an opportunity for smaller institutions like Weisel. The banker, who joined Weisel in the Westwind acquisition, says that "money is on the move" in the industry. His appointment as president also has freed CEO Thomas Weisel to again take a more hands-on role in the company, Conacher adds. The executive recently spoke with The Deal about what Weisel is doing to revive its business during a time of enormous change in the banking world.

The Deal: Like other banks, Weisel Partners has struggled of late. Yet it's worth noting that, unlike a number of other institutions, it has survived. Do you see any encouraging signs for the bank despite the woeful economic conditions plaguing the financial industry?

Lionel Conacher: We have had some significant competitors go out of business and some significant competitors combine. Somewhere between 10% and 20% market share in the areas where we do business is up for grabs. That's not to say that we'll get it all, but we intend to get more than our fair share. Historically, in venture-backed IPOs, we would have competed with the Morgan Stanleys of the world. It's my belief that the bulge-bracket firms are all preoccupied and are going upmarket. Goldman Sachs is getting out of small-cap stocks. Its layoffs have all been in the small-cap area. For firms like us, this creates an opportunity.

Really? Our reporting shows that the big banks -- even if we're talking about Merrill Lynch operating within Bank of America -- are increasingly targeting the middle market now that major acquisitions are off the table.

We know the venture capital community. We talk to them all day long, and we keep hearing that the bulge firms that had historically been active in calling on the venture community are not doing that anymore.

How does this latest downturn compare with the dot-com bust?

This feels like a combination of the 1987 crash and the savings & loan crisis of 1993, because the '87 crash was marketwide as opposed to sector specific, and the S&L crisis was real estate driven and resulted in a massive reset in values. For us, our revenue base is much more diversified than it was at the time of the dot-com bust.

You've announced two rounds of job cuts this year, amounting to about 27% of your staff being eliminated. Does such a large cutback make it tough for Weisel, which remains a full-service bank, to continue firing on all
cylinders?

I don't think we've cut muscle or bone. I think we're right-sized. We had been overbuilt for the market opportunity we had. We are continuing to look for bankers in the U.S. energy area. We are continuing to look to add to our healthcare expertise.

What about in high-tech?

We're good on the tech side.

Energy and mining are relatively new sectors for Weisel. What is your outlook for deal activity in this sector, and how does that compare with high-tech?

We are big believers in the urbanization of China and India and the long-term commodity bull market over the next 10 to 15 years. From a short-term standpoint, with the worldwide contraction, of course, that will affect all of the industries we're involved in.

On technology, tech spend budgets are going to be flat to down year over year, and that will absolutely negatively impact the tech companies we're involved with. But the flip side is that, fortunately, most tech companies have very strong balance sheets. I think you are going to see a lot of consolidation and a lot of M&A across the spectrum.

Roughly 60% of your banking revenue in the latest quarter came from the energy and mining sector versus only 12% from high tech. Are you backing away from technology?

Not at all. The theory behind having a diversified strategy is that we don't actually know which industrial sectors are going to be active. We've decided that rather than being a single-focused firm, we will focus on a wide variety of industries, remaining very committed to our position in small and midcap companies.

Weisel Partners was specifically founded to harvest emerging tech companies in Silicon Valley. Was that initial business model a mistake?

Given the benefit of hindsight, the firm expanded extremely rapidly based on the belief at the time that the dot-com boom was going to keep going, and it didn't. The firm had to go through a complete restructuring, building out the healthcare and consumer sides of the business.

And you will continue to underwrite tech IPOs?

Absolutely. We've come through a period that I don't think we've seen in 15 years. And I believe that the first half of 2009 is going to continue to be challenging. That said, last week alone there were more companies registering for IPOs in the past few weeks than in the past five months combined. We've been involved in three of the 51 IPOs in the U.S. so far this year, as well as two in Canada.

What are your plans for your asset management business?

It's been an area of focus almost since the very beginning of Thomas Weisel. With me having taken over day-to-day operations, it's freed up Tom to focus more on asset management. I'd describe it as a renewed effort.

Anytime you've got a dislocation in the market, you'll have money on the move. It creates new opportunities for new entrants.

Weisel's advisory-related revenue has risen sharply as a portion of your overall business, amounting to about 51% this year, compared with 30% of total revenue in 2007. What are your longer-term goals on the advisory side?

We decided to put a big push and increase that as a percentage of our business. Recently, we hired a guy named Seth Ferguson from UBS [Ferguson, Weisel's managing director and co-head of M&A, previously served as global head of technology M&A at UBS] and Christopher Poggi from J.P. Morgan [Poggi, Weisel's managing director for investment banking focusing on software, was previously executive director at J.P. Morgan]. And you will continue to see us add talent in the advisory area.

Will the layoffs you're planning affect the firm's bonus season in 2008?

We are just entering our discussions around 2008 bonuses, and we haven't made any decisions. I think it's fair to say that, across the board, the industry will be down year over year.

Some bank executives have said they plan to decline their own bonuses. Is that something you'd consider this year?

I don't really know.

What's your view of how the government has handled the financial crisis, and what are your expectations for the Obama administration?

I think the U.S. is extraordinarily lucky that they had a guy like Treasury Secretary Paulson sitting in that seat when this happened. We are in unprecedented times. I think the guy has been unbelievably pragmatic. So has Federal Reserve Chairman Bernanke. The U.S. is very lucky to have them both. In times like these governments tend to go toward more regulation, rather than less, regardless of who is in office. The thing I really hope, and believe, actually, is that [Barack] Obama is smart enough to surround himself with very experienced financial people. And I hope he takes the advice that now is perhaps not the time to be increasing taxes.