Monday, July 2, 2007

Prying open the IPO market crack

Last week’s New York Times article Door Is Open to High-Tech Offerings That Meet Thresholds brought back memories for me of taking my company Simplex public in 2001. We had the best first day performance of the year by opening up a crack in a closed IPO market and it took some old fashioned thinking to get out.

Leading up to our IPO – during the bubble years of 1998-2000 – we had built a terrific “real” company. We had rapidly growing revenues, rapidly growing earnings, deep technologies and a growing number of customers among the who’s who of our market. But could we get investment bank attention? No. Sadly I could not pitch eyeballs or pageviews. We were not part of the bubble and so were not considered IPOable. No one wanted to represent us.

Since we were growing fast and needed cash, but did not want to do another round of venture money which we knew would be challenging (for the above reasons) we secured a line of credit, drew it down and managed our cash very carefully. It’s challenging to manage a business with $40M in revenue, growing fast and no access to cash!

Determined to get access to the capital markets, we finally convinced the tech team at CSFB to bank us and we filed our S-1 on September 11, 2000 and waited, ready to go. And waited. And waited. The window was closed.

But, we were ready for a glimmer of light and like boy scouts, we were prepared. To get out in a bad market we focused on quality:
- quality of revenue, with 70% recurring so very high visibility
- quality of management team
- quality of customers, with 80% of the leading semiconductor companies as major customers
- quality of technology, with our second act – a new generation of chip architecture (the X architecture) ready to be announced a few months after our IPO
- quality of our story for investors

I must have called the bankers at CSFB every week for months to get support to go and in the end, in a fateful meeting with Larry Sonsini (who was on my board) and Frank Quattrone (who was running CSFB technology banking at the time) in late March 2001 we agreed on a price for the front cover of our filing and pulled the trigger to go. I saw the wheels of power at work that day as two old friends listened once more to my case and decided they believed I could get the company public and so to put me on the road.

We were the first IPO for the CSFB tech banking group that year so nerves were frazzled and the capital markets team were very tough to work with – so much so I made a gift of a giant plastic rat, with a red bow around it’s neck, to the head of their team at the end (it was an inside joke). We had decided to put just one price, $10, on the cover instead of the usual range, because no one could predict which way the market would swing and whether we would get out at all. I remember deciding I had to drive this one all the way to the cliff, not knowing if we’d take off or crash, but I knew I had a quality company. I knew we were prepared and if I could just get an audience with the buy-side that they would see the value of the company we had built.

We priced on May 1, 2001 at $12 and closed first day trading at $22. And sustained great pricing until we, like everyone else, were hurt by September 11.

So now, the capital markets are skeptical but there are great companies ready to go and wanting access to them. I believe, once again, it’s all about quality. Quality of revenue, earnings, customers, product and people.

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