Public Image?

With Internet companies back on the IPO map and VCs becoming interested again, should you follow the pack?
Magazine Contributor
5 min read

This story appears in the April 2004 issue of Entrepreneur. Subscribe »

For nearly three years, stock IPOs for Internet-related companies languished, but last year, several of these companies went public, including RedEnvelope (, a gift e-tailer; Provide-Commerce (, which operates; the popular travel company (; and iPayment (, which provides payment-processing services to small merchants for credit and debit card transactions. Even more promising, most of these IPOs exceeded investors' expectations.

There are more offerings to come this year., a hosted-CRM specialist, filed for a $115 million IPO in late 2003, which it plans to undertake this year. And speculation is high that search engine company ( will file an IPO in 2004.

According to experts, since these IPOs have been successful, more and private investors-sensing exit opportunities-are becoming interested in these types of businesses again.

"Because of the environment in the last couple of years, there has been a slowdown on the IPO front, and VCs were hunkered down looking after their existing portfolios as opposed to investing in newer companies," says Abha Bhagat, a senior analyst at Web-traffic analysis firm Nielsen//NetRatings in Milpitas, California. "But as the business environment has improved, there is now more confidence on everyone's part."

Jack Harrington, general partner of Advanced Technology Ventures, a Palo Alto, California, firm offering startup funding for communications, Internet, software, services and health-care companies, agrees. Advanced Technology Ventures made 15 investments in 2003. Says Harrington, "I would expect us to be at least that active in 2004."

VCs may be taking more meetings with e-tailers and e-commerce companies, hoping these firms will go the IPO route or be acquired, but their attitudes are very different from those of the Internet boom of the late '90s. Now, they aim to invest in companies with solid business plans that show the potential to attract a wide stream of customers and increase profitability.

"We're looking for something aimed at a big market, a half-billion-dollar market or better," says Harrington. "You also want a team that understands the dynamics of the market at a technology and product level, and in terms of the competitive nature of the market. You also want to make sure the product [is special]. Is it a new invention? Is it patented?"

Harrington describes the current environment as "about where we were in 1997, when bankers wanted predictable growth. [Investors] will be far more cautious [about] not just solid business models, but proven business models." Most promising, you can feel an air of optimism around. Activity is good, says Harrington, and deal flows are strong. "There are more people knocking on our doors, and there are a lot of opportunities out there for small companies that are pursuing VC funding."

Certainly, many businesses today hope for VC funding or eventual IPOs, or want to become acquired. Others are making a conscious decision not to pursue an IPO and to maintain organic growth instead.

One such company is C I Host, a privately held company providing Web-page hosting. In the past three years, the company has experienced triple-digit growth; and this year, sales are expected to hit $49 million, says CEO and founder Christopher Faulkner. And C I Host has more than 200,000 clients in 182 countries.

Faulkner, 27, started C I Host with $1,000 of his own money in 1995. "We didn't get any bank loans, [had] no VC money, no seed money and no angel investors," says Faulkner. "We grew slow and steady and organically, and didn't go IPO. We think it was a smart way to go."

Faulkner points to the extreme amount of money required to go public: "The last average I've read is somewhere between $500,000 and $1 million to take a company public." In addition, Faulkner doesn't want to lose control of his company. "Investors are not going to give you money and let you run the company," he says. "They're going to build a board of directors and put their own people on it." Since Faulkner's company is private, he's able to keep up with market shifts and changes. "We can shift our prices or our offerings, but a board of directors is going to want to know why you are doing that, and they'll want to do a competitive analysis or spend six months talking about it," he says. "Then, by the time you make the decision, you're six months behind everybody else."

Faulkner brings up the fear shared by many a dotcommer-like so many entrepreneurs, he has friends who took their companies public during the Internet boom and made a lot of money right away. "The stock flew high for awhile, but then it nose-dived, and then a lot of them filed for bankruptcy," he remembers.

Faulkner says that since the spring of 2003, he's received calls and letters from investors and companies interested in buying C I Host-but he's not interested. "As far as I am concerned, we're expanding enough; I don't want to go crazy," he says.

Clearly, VC money and IPOs may not be the way to go for all growing businesses. But Tom Taulli, a partner at investment bank Bridgewater Capital in Newport Beach, California, and author of Investing in IPOs Version 2.0 (Bloomberg Press), says that many companies need funding just "to keep the shop going." Taulli, who is also an adjunct professor of at USC's Marshall School of Business, says that as the markets heat up again, everyone will want to go public, "and they'll forget about the regulations and complexities involved."

So, will you go after VC money? Will you go public? Whatever you decide, at least you can be sure of one thing: The money is out there, and optimism is high. That's good news for all businesses.

Melissa Campanelli is a marketing and technology writer in New York City.


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