The initial public offering is a right of passage, the first time non-VC investors get a crack at owning a piece of a company. But given the amount of hype circulating in the tech world, it’s also usually an occasion for early investors to get an inflated payout and leave lay investors with a rapidly deflating stock. We’re not saying it’s definitely going to happen when Facebook goes public tomorrow — but it does seem to happen an awful lot. So before you start buying up shares, we’ve got a few stories for you.
This grocery delivery company is the gold standard of 90s tech-bubble flameouts. It raised $375 million going public in March of 2000. By July of 2001, they’d burned through their operating budget and filed for Chapter 11. Anyone who got in on the IPO was left with bupkis.
Pets.com was a smaller but — thanks to a few Super Bowl ads — much more visible example of the Webvan phenomenon. They raised $82.5 million in February of 2000, and didn’t even make it through the year.
The perfect storm of modern-day IPO debacles, Vonage didn’t just lose 30% of its share price in the first week, it also brought on a class action lawsuit and over $400,000 in fines against the underwriters for misleading financials. Six years later, it’s still a cautionary tale.
Rackspace is the rare example of a solid company recovering from a disastrous public offering. Their August 2008 IPO lost 20% of its share price within hours of the opening bell, the equivalent of vaporizing $37.5 million. It took them the rest of the year to climb back to their opening price.
This stock more than quadrupled in price on its first day of trading, then plummeted into bankruptcy two years later, after which they were snapped up by a subsidiary of Bain Capital (of Mitt Romney fame).
6. Demand Media
This content megafarm popped early, but plummeted to half its original valuation within six months, with a less-than-friendly Google algorithm change along the way.
This one’s less an out-an-out catastrophe than the year-long equivalent of the sad trumpet sound. After a quick gold rush, Pandora dropped 25% of its value and has stayed in the basement ever since. (For illustration purposes, the box represents global financial markets.)
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