Take My IPO . . . Please!

A Certificate It Won't Sell

When GiftCertificates.com filed for an IPO in June 2000, it hoped to raise $50 million for sales and marketing, purchases and acquisitions, capital, and alliances.

But the offering was pulled in mid-November. "By June, the market had already begun to turn against companies doing business on the Internet," says CEO Michael Ahern. The company didn't want to take the risk of being undervalued, and timing wasn't optimal during the SEC-imposed quiet period as the holidays approached.

Now Ahern, a former Microsoft executive who replaced founder Jonas Lee as CEO last October, is restructuring the company. GiftCertificates has 4,000 corporate clients and partnerships with 700 merchants representing 800 brands, including Bloomingdale's and TGI Friday's.

While the company did $65 million in sales in 2000 (a 250 percent increase over 1999), its debt stands at around $90 million, due in part to last year's acquisition of two of its competitors, Seattle-based GiftSpot.com and Omaha, Nebraska-based GiftPoint.com. The company's staff has ballooned to 350. "We realized we hadn't [focused] on efficiency during the mergers," says Ahern.

Fourth quarter 1999:158 IPOs at a total value of $47.2 billion

Fourth quarter 2000:56 IPOs at a total value of $15.1 billion

SOURCE: Hoover's Online

The new strategy? Cut back, and increase efficiency. The company let 70 employees (20 percent of its staff) go in January to minimize operating losses. The company also moved its main offices from pricey Manhattan to frugal Carlstadt, New Jersey. (Satellite offices in Omaha and Seattle remain open.) "We have one sales and marketing team, whereas we had two or three before," Ahern says. Additionally, the company decreased its advertising spending to about $1 million per quarter, a far cry from its days of having prominent billboards in Times Square and Sophia Loren as a spokesperson.

Securing additional funding also became a matter of urgency. In November, the company received $13 million in its fourth round of venture financing from a variety of VC firms. During the second half of 2000, GiftCertificates raised an additional $50 million in private venture equity.

Partnerships are also an important part of the company's growth strategy. In November, it signed an agreement with AOL that lets AOL subscribers purchase from GiftCertificates via AOL's site. Later that month, it did the same with Yahoo!, creating http://giftcertificates.shopping.yahoo.com, where online shoppers can purchase gift certificates from a variety of retailers.

Still, rumors are flying in Internet chat rooms about the company's possible near-term demise due to its financial situation. Ahern deflects the rumors and says he expects the company to be cash-flow-positive by the end of this year. He may consider taking the company public when the market rebounds. "At some point, it will make sense for us to go back to the public markets," he says. "But it's more about when the public markets are ready as well as when we're ready."

Year 2000 started well, with lots of companies getting ready for IPOs. The trend spiked in March, but by year-end, more companies were filing to withdraw than were filing to go public. Here are the numbers for the entire year:

Total number of IPO filings in 2000:717
Total number of IPO pricings:431
Total number of IPO withdrawals:201

SOURCE: Hoover's Online

Chris Penttila is a Washington, DC-based freelance journalist who covers workplace issues on her blog, Workplacediva.blogspot.com.

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This article was originally published in the June 2001 print edition of Entrepreneur with the headline: Take My IPO . . . Please!.

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