The IPO Diaries: the Alibris 2004 Road Show
The Money Campaign
A Daily Diary of the Alibris 2004 Road Show
American stock markets have replaced commercial banks as our most important source of corporate financial capital. Today about 15,000 companies worth trillions of dollars sell shares to the public. Public companies come under the scrutiny of the Securities Exchange Commission, whose first Chairman, Joseph Kennedy, Sr., knew a thing or two about the manipulation of public capital markets.
A company that wishes to raise capital by selling its shares to the public undertakes a highly formalized ritual known as an initial public offering, or IPO. For a fast growing technology company, an IPO is a coming out party worthy of a Texas debutante. For a CEO, an IPO is a right of passage.
Two years ago, I attempted to take a small company public shortly before the Google IPO, one of the largest and most visible public offerings ever.
Our offering failed – a humiliation at the time, although it turned out not to be such a bad thing. The reasons for the failure are partly fundamental (Alibris was too small to be a public company), partly technical (our lawyers and bankers made some boneheaded decisions), and partly financial (thanks to optimistic and generous private investors, we ended up not needing to accept pricing that we did not like). As with most public failures however, almost nobody remembers the reason or even really cares.
Preparing an IPO takes several months. Attorneys, investment bankers, and accountants prepare detailed documents for government review. The collective billing rate for these rooms full of nice suits frequently exceeded $10,000 per hour (excluding the bankers, who get paid more, but only if and when the deal closes). Our company, which sells used, rare, out of print books to consumers and businesses via the Internet had rather less than $10,000 per hour in revenue – and no earnings to speak of. The documents that emerge from these meetings give the public a remarkably complete, if turgid, picture of the company, its markets, people, and financial condition.
To go public, a company puts on its Sunday finest. Boards quickly adopt policies worthy of grown ups: how do we protect whistleblowers? What is our code of ethics? (Bring on more lawyers, since "No cheating" will no longer suffice). Should we reincorporate in Delaware, whose courts are apparently a wholly owned subsidiary of the stock exchange? (Easy decision. Yes).
The documents are reviewed and approved by the SEC, whose attorneys are not fools. They assume that anyone raising public capital is trying to shill an impoverished widow out of her last dollar. In truth, we will be attempting to shill large investment funds out of a tiny fraction of their dollars — but the disclosure requirements are the same.
Once the draft prospectus, or "Red Herring" is approved, the road show begins. The CEO, the CFO and the investment bankers visit prospective investors. The road show is an intense, surreal journey of over-scheduled days that resembles nothing so much as a politician’s whistle stop election campaign. The purpose of the campaign is money – for a company and eventually for investors.
Our road show took place in early May, 2004. Each evening, I emailed home notes to our board and employees. I am publishing each entry on its two year anniversary because to have published them at the time would have violated the strict SEC "quiet period" prohibitions on any communication that had not been cleared by regulators. I have updated the diaries slightly and redacted most names. Doing this eliminated all reference to my bankers, lawyers, and colleagues – especially Steve Gillan, our CFO, and Brian Elliott, then our COO. This is fair, insofar as they in no way endorsed my musings, but it gives the incorrect impression that this IPO was a solo effort. It was not. I happily acknowledge and appreciate their huge contribution to this effort – although errors in these notes are mine alone.
Although blogs traditionally present most recent entries first, these are best read chronologically. .
Diary in chronological order — as it happened:
Day Two: San Francisco: Stretchin’
Day Three: La Jolla: Flush Until Water Runs Clear
Day Four: Denver: Momentum a Mile High
Day Five: Milwaukee: How High is Up?
Day Six: Boston: You Must Be Salesmen
If you enjoyed this post, please subscribe to the feed and get future articles delivered to your feed reader.
