Reply.com: IPO or hanging out a “for sale” sign?
This morning, Reply.com of San Ramon announced it had filed its prospectus to go public. Just over the weekend, I wrote a column about how Silicon Valley would be better off with fewer IPOs.
This is just a hunch, but after reading through the filing, I can’t help but think the company is really angling for a sale, rather than an IPO. Time will tell, but this looks and feels like a company that needs an exit soon. And given the numbers and history, I’m betting they’re hoping to attract interested buyers. If they get all the way to the IPO, I’ll be a bit surprised.
Here’s why:First, I’ll start with the press release. I received it in an email from Reply.com with a the subject line “possible IPO” and the first paragraph refers to a “a proposed initial public offering of its common stock.” Sounds like a company hedging its bets.
Second, let’s look at the numbers. Over at TechCrunch, Erick Schonfeld does a good job hitting the main ones:
“Revenues rose 75 percent in 2009 to $32.6 million. The company operates with a 50 percent gross margin, and turned its first net profit in 2009 of $2.5 million. The business produced $4.7 million in cash flow in 2009, but it ended the year with only $1.3 million in cash.”
And:
“Since 2005, the company has raised $27.5 million
from Scale Venture Partners, Outlook Ventures, ATEL Ventures, and Debi Coleman, a former CFO of Apple. CEO Payam Zamani is the largest stockholder. He owns 43 percent of shares outstanding (before the offering). Scale is the second largest shareholder, with 21.5 percent.
Zamani was previously the co-founder of Autoweb, and he’s been bankrolling the Reply.com. Over the past two years, the company has been dipping into his personal lines of credit to improve its liquidity. According to the filing, the “aggregate principal amount that we repaid under these credit lines to Mr. Zamani through December 31, 2009 was $5.9 million.”
The company was founded in 2001, so they get kudos for hanging on this long. And the reason behind the revenue surge last year was that the company just introduced its new auction marketplace in December 2008. So it must have done a major reboot in the past year after getting its finances under control.
But even though it’s been around for nine years, the new business is about one year old. Granted, it’s profitable. But the revenues are still tiny. There’s a lot of talk that in the best of times, it will be tough for a company with $200 million in revenues to make it out. Reply.com is well below that.
So that’s why I suspect this is really a subtle way of announcing the company is ready to listen to offers. Sounds like they have a promising product, so I won’t be surprised if they get some decent offers that earn the investors a healthy return on their investments and gives the founders a nice return on their years of sweat equity.
It’s just not likely going to be enough to buy anyone an island in the Carribean.
Over at TechCrunch
Subscribe via RSS all feeds
RedPrairie, a supply chain software company, recently did something similar filing an IPO, and ultimately selling to a private equity firm. It’s a good tactic and the company doesn’t even have to open up their books to the public.
What good are you doing suggesting that IPOs should be washed away? Anyone with basic counting skills and some sense of the Valley the last 15 years knows that IPOs are WAAAYYY down the past decade. I mean, beyond Google and Salesforce, what other major noteable IPOs have their been since 2003?
Couple things have happened the last 10 years: 2 recessions in 8 years, Sarbanes Oxley (which is overplayed as a barrier), and the elimination of the IPO route if you didn’t have a real business (adios 1996-2000 era)
If you look at Facebook, LinkedIn, Zynga, Yelp, Admob, and others, you have real businesses (most of these guys have cleared $100 million in revs).
So, in reality, many of these guys COULD go public TODAY and it would be a BIG deal. You telling me people wouldn’t want to jump all over the Facebook or LinkedIn IPOs in big numbers?
Yeah. They would.
Granted, these are a small number of the startups in the Valley. But they can help lead us out of this thing whenever they choose to go. At some point, they are going to have to Chris.
Another IPO scam is on the menu, Bloom energy with an elaborate master plan to exploit money and as such the management as well as VC firm which is also ties up with Google now try to take materials out of the internet which is against this bloom energy and its predecessor ion America
This company has some serious issues and are facing possible law suits concerned their fraudulant business practices. Research them by typing in reply.com scam in any search engine. With their current reputation, I’m not sure how long the profits will last.
Their lone public financial statement is incredibly shady. How could a company double their revenues in a down economy, especially when their whole business centers around real estate and automobile leads? Secondly, their expenses are at the lowest it’s ever been since 2005. Are you kidding me? How is that possible when it is start-up that’s trying to grow the business every year for their IPO? Is this even an audited income statement?
Hey Ralph revs are great , but not if your expenses exceed revs. Also by the way IPO’s have always been either hot or cold. The valley has been around for over 40 yrs so 15 yrs is no magic number. In 1975 there was 1 tech ipo.
Chris,
Are you a bit contradicting yourself? Last month you also talked about
alarming decrease in number of public companies.
I am trying to achieve angel funding for my startup wattminder –sort of
grass-root innovation community turned into an enterprise. I am
advocating a program where citizens, such as tens of thousands of idled
scientists and engineers spinning their wheels sending resumes and receiving ejections; can be directed to much more productive pursuit.
Creating dederal and local government sponsored ‘Innovation incubation’ centers
where selected promising teams with ideas can work on developing their
ideas supported by government subsidized patent applications, and free rent. Sharing of revenue or royalty from successful commercialization of the
innovations back to the incubators may maintain and be promulgated more
broadly across the country.
May be you can add your spin to it and get people to thinking about this
idea?
Thanks
-Steve