IPOs are risky business–just ask Snap CEO Evan Spiegel, whose first financial report post-IPO left much to be desired. But while the Los Angeles-based social media firm will have had few traders rushing to buy stock, the tech industry has seen far, far worse. Here are five tech IPO flops that have no doubt caused tears and plenty of sleepless nights. If you’re squeamish look away now.
In 1994, a full decade before Facebook emerged, there was theGlobe.com, the first social media that allowed users to share content with each other. By the time founders Stephan Paternot and Todd Krizelman decided to go public, in November 1998, the first dot com bubble was in full swing and billions were being thrown at anything that looked as if it might dominate the Internet space.
On November 13th theGlobe posted the biggest first-day gain of any IPO in history, jumping 606% from $9 to $65. The company’s 3.1m floated shares raised $27.9m, setting theGlobe’s market capitalization at $841.8.
At one point the firm’s price hit $97. Paternot was infamously recorded by CNN at a glitzy Manhattan bar with his model girlfriend Jennifer Medley. Dressed in shiny black pants, Paternot told the reporter, “Got the girl. Got the money. Now I’m ready to live a disgusting, frivolous life.”
Journalists could barely hide their schadenfreude when Paternot, known by then as “The CEO in the plastic pants”, was forced out of theGlobe in 2000 alongside Krizelman, with its share price just 10c. “Life is not about a stock price – people have to understand that,” wrote Paternot in his 2001 memoir A Very Public Offering. His own tale is pretty good evidence to the contrary. theGlobe ceased operations in 2007.
Do you remember when an Internet company’s mascot appeared on Good Morning America? No? What about the time it was interviewed by People magazine, or when its commercial aired during the 2000 Super Bowl (the one when Mike Jones became famous for The Tackle)?
Pets.com might be the only example of when a company has been unable to emerge from the shadows of a sock puppet. Launched in 1998–again during the height of the dot com bubble–the e-commerce site raised $82m, or $14 per share upon a 2000 IPO. Amazon was one of Pets.com’s venture backers. Chief exec Julie Wainwright announced that it was a “CEO dream team.”
She wishes. Just 268 days after its successful IPO Pets.com was filing for bankruptcy. The company hadn’t correctly estimated shipping costs, it was found, and shares were valued as low as 19c by the time Wainwright and co called it a day on November 6 2000, just days before that year’s presidential vote.
3. Shanda Games
When Shanda Games was spun out of household name Shanda Interactive Gaming Ltd via a 2009 IPO, it was the largest public offering of a Chinese firm in the US. Legend of Mir and Aion were just two of the company’s massively popular titles.
With its share price set at the high end of valuation at $12.50, the company raked in a fortune. By the end of the offering Shanda was responsible for the year’s largest IPO, raising a total of $1.04bn. But Shanda’s high pricing soon came back to bite it: the number of investors willing to pay top dollar had been exhausted in the early stages of the deal, and with nobody remaining to foot the rest of Shanda’s valuation, the company’s value was wiped to the tune of 14% almost as quickly as the champagne corks had flown in its Singapore headquarters.
When something is prefaced as ‘The Vonage IPO Disaster’, you know it must be bad. And truly, Vonage’s IPO debacle in 2006 was a lesson in how not to botch your company’s biggest financial moment. Back then the New Jersey-founded telco commanded around half of America’s Voice over Internet Protocol (VoIP) market. But it was shipping money at a frightening rate: since its 2001 inception the firm had made losses of more than $300m.
Vonage offered shares at $17, and investors queued up to snag them. But the company added a tech-based twist to proceedings; namely to offer 13.5% of its shares to existing Vonage customers, who could buy via a website created by the deal’s underwriters.
Those customers were frustrated when, due to a technical hiccup, they were told they could not actually purchase Vonage shares through the site. They breathed a sigh of relief when, after just a week, the company’s share price had already lost 30% of its value. Then, something strange happened: Vonage declared that the customers had, in fact, bought their shares–at the original 17% price.
Cue anger, resentment and a class action suit filed against the IPO’s underwriters that would eventually cost them $800,000 in fines. To throw in a punch while down, a federal judge then told Vonage it could not use technology licensed by communications giant Verizon. By the end of 2006 Vonage shares were worth just $3, a whopping 82% nosedive since the public offering.
Vonage has managed to canter along relatively well following the mess, posting revenues of $248m last year. Its shares are now worth a shade under $7 each. But the company is still best known on Wall Street as a tech firm hoist by its own digital petard.
Though it lasted a full nine months more than Pets.com, you could hardly call Webvan.com, a US-based logistics firm, a success. Another dysfunctional son of the dot com bubble, the Foster City, California-based company promised to deliver groceries to users’ doors in 30 minutes or less.
Considering Amazon can still come nowhere close to that delivery time, Webvan should have set alarm bells ringing in American financial circles. But not to worry–this was the Internet Age and Everything Was Possible–so in 1999, just two years after launching, the company went public and raised a healthy $375m, to add with a heady $1bn in venture capital.
Unsurprisingly, the company’s model–supposedly available in seven major cities–was a fiction. Its warehouses, stocked with the latest technology, cost too much and each order was costing the firm $10: not much use should a shopper buy less than $10’s worth in groceries. By 2000 the company was leaking around 250% more money than it was making, and shut down in June 2001.