What is it about initial public offerings? Yes, any company on the road to IPO faces complex federal regulations and financial scrutiny from the SEC, investors, and the media. But IPOs--and the roadshows leading up to them--seem to encourage a certain boneheadedness among entrepreneurs who are otherwise extraordinarily capable leaders. Why, then, do they put their feet in their mouth during the quiet period or go on roadshows wearing hoodies? Consider these the best of the blunders--and a series of cautionary tales for the next round of IPO hopefuls.
IPO date: May 18, 2012
What happened: During the roadshow, CEO Mark Zuckerberg showed up in a hoodie, doing little to endear himself to the buttoned-up Wall Streeters in attendance. That was just the first gaffe, and in retrospect, by far the least serious. Then, four days into the roadshow, Facebook adjusted its financial forecasts, but only fully explained the changes to a group of analysts in a conference call. Then, at the start of trading, technical problems caused a 30-minute delay at the start of trading. Investors continued to report problems completing and cancelling orders throughout Facebook’s first day as a public company, claiming losses of more than $500 million.
IPO date: November 4, 2011
What happened: After media scrutiny of his company’s business model, Groupon CEO Andrew Mason cemented his reputation as a loose cannon with an email that was leaked to the press, violating the company’s quiet period. Groupon pulled its filing, eventually going public two months later.
IPO date: May 24, 2006
What happened: Vonage thought it would be a great idea to encourage its customers to buy stock in its IPO. About 10,000 customers did just that, but then the stock dropped 24% on its first day of trading and the underwriters didn’t process the orders right away. Result: Vonage’s customers ended up losing about $4 a share on day one. And the underwriters, who included CitiGroup Global Markets, UBS Securities, and Deutsche Bank Securities, were ordered to pay as much as $420,000 in restitution for failing to let customers know if they actually owned stock.
Company: BATS (Better Alternative Trading System)
IPO date: March 23, 2012
What happened: BATS, which billed itself as the third largest exchange in the nation, provided an alternative trading system for investors. But on BATS's opening day, that system failed miserably. A software bug caused shares of the company to drop to just four cents a share from $16 a share—before lunch. The bug affected not just BATS stock, but all stocks traded on its exchange.
Company: Blackstone Group
IPO date: June 22, 2007
What happened: Blackstone Group’s 2007 announcement that it would go public wasn’t what it seemed. The company that actually went public was a smaller spin-off called Blackstone Holdings. Although Blackstone Holdings reported annual revenue of $2.3 million, it was valued at $40 million. The upshot: In the midst of the credit market collapse, a company that prided itself in buyouts and takeovers lost 42% of its value in its first year of trading. Blackstone got sued for misrepresenting itself and omitting key facts in its pre-IPO documents.
IPO date: August 19, 2004
What happened: Google founders Sergey Brin and Larry Page entertained a Playboy reporter at the Googleplex in Mountain View--during the company’s quiet period.
The resulting article portrayed the Stanford alums as geeky high school boys with a bad case of ADD. Google later amended its S-1 to include the interview.
IPO date: June 23, 2004
What happened: Yet another quiet period violation. CEO Marc Benioff allowed The New York Times to shadow him for a-day-in-the-life-of piece. The article even mentioned the quiet period and breezed over the fact that Benioff was okay with completely ignoring it. Benioff seemed to think that his open-book approach would get his company positive attention before it was slated to go public. Instead, the story portrayed Benoiff as an overzealous CEO who didn’t believe the rules applied to him, and the company was forced to delay its IPO.