The event was held again last Thursday, but under much darker clouds: a Nasdaq that’s down 17 percent since the beginning of the year, with a whopping 42 IPOs withdrawn or postponed since the beginning of April. In the intimate, hilltop conference room, with a brilliant view of Silicon Valley splayed out below, 140 start-up execs gathered to hear market predictions and gauge the viability of their companies –and get a generous dose of bitter medicine. First, venture capitalist Joe Lacob of Kleiner Perkins Caufield & Byers predicted that the IPO market for most consumer Internet companies wouldn’t regain steam for two years. Then another VC, August Capital’s Andy Rappaport, counseled attendees on the newly widespread need to raise a “down round”; that’s the painful act of reducing your company’s valuation to attract new investors (they get more of the company for their money, while horrified employees and past investors see the value of their shares decline). Then both VCs debated the best way to fire inept CEOs. The groans and nervous chuckles from the entrepreneurs almost drowned out the constant electronic warble of cell phones. And that was all before this gem, from Alex. Brown analyst Jim Moore: “We’ve been saying for two years, ‘Don’t worry about making a profit.’ Now we’re saying, ‘Just kidding’.”
If the entrepreneurs needed any more evidence that the rules had changed drastically, they got it last week. The consensus at IPO Boot Camp: the euphoria is over. No longer will twentysomething CEOs (egged on by the banking community) foist undercooked companies onto the public markets. Milling outside during breaks in the action, most attendees discussed the news with stiff upper lips. “It’s a little depressing,” says Robert Browne, director of finance at the Sunnyvale-based Icarian. His company just raised $55 million, but Browne figures he’ll have to milk private equity for an additional two or three years before he can consider going public. Personally, he says he’s having fun but notes wistfully that his door to instant, personal wealth “is shut, it’s absolutely shut.”
Other attendees exhibited symptoms of that disconcerting Silicon Valley ailment, not-me-itis. The illness makes straight-faced execs of untested start-ups assert, “It’s wonderful that all the bad companies will fail, because that clears the way for us.” One CEO claimed she was much more comfortable working in this “predictable environment.” Another pointed out that his company will survive partly because it spends 40 cents per square foot on office space in Oakland, and not $5 across the bay. Then there was Chris Risley, CEO of Redwood City-based NewChannel, who expressed satisfaction that all those start-ups “with really crazy schemes won’t be out there stealing our employees.” But even Risley had to finally admit to a little regret: “It might have been fun to be ridiculously overvalued.”
As the day wore on, the investment bankers and veteran CEOs speaking to the audience put away their pessimism and shared tips on weathering the IPO process. There was advice on surviving the road show (“get your banker to pay for a private jet”), avoiding the watchful glare of the SEC (“don’t test them, they’re vindictive and will win every time”) and officiating at the inevitable battle over fees between your bankers (“it’s the worst part of the process,” said one of the culprits, a banker). But all assumed that the participants would be eventually going public –and the market is currently punishing even strong, profitable Internet companies, like eBay. If the averages hold up, fewer than one in five of last week’s conference attendees will pop the champagne cork. No wonder they need a boot camp to whip their companies into shape.
