That's why the investment world stood agog when, on May 30, Wired Ventures filed its preliminary prospectus with the Securities and Exchange Commission, and suggested the company was worth as much as $447 million.
To call that sum princely would be to understate the case woefully. Epochal would be more like it. At close to half a billion dollars, it was well beyond the outer limits of what investors had ever paid for a publishing company of Wired's size--never mind one whose operations were on track to lose $11 million that year (not even counting a onetime $20.5-million write-off to put the company's disparate assets under one corporate umbrella).
In a scathing article in The New York Observer, writer Christopher Byron dubbed the offering "a piece of junque du jour" and "the Wall Street equivalent of landfill." Byron described Wired's balance sheet as "growing worse by the minute, as if some kind of financial Ebola virus were spreading through the operation....Peel away all the financial razzmatazz and Wired Ventures has turkey written all over it--a business dependent on the financial equivalent of an iron lung for continued survival. Unplug the thing and the company drops dead."
So where had the fantastic valuation figure come from? As in any deal, it was largely the product of taking companies in the same field that were already public and seeing how the market valued them. But in this case, the choice of "comparable" companies could be described only as, well, a stretch. Though a few mainstream media companies such as Disney were among them, they also included Netscape, Yahoo!, CKS, America Online, and C/Net-- the kind of high- flying Internet companies Wired magazine wrote about rather than the sorts of print publishers Wired Ventures resembled.
The reasoning was spelled out in the prospectus: Rossetto evidently fancied himself the head of "a new kind of global, diversified media company for the 21st century." (Neither he nor Metcalfe would comment for this story, but through a spokesperson they pointed out that a group of private investors had paid new-media prices for a chunk of Wired a few weeks earlier, valuing the company at $305 million.)
For a company that still got 93% of its revenues from a single print publication, it was a startling flight of imagination. Whereas Wired the print publisher would likely be valued at from one to three times the company's 1995 revenues of $25 million, Wired the new-media company was now shopping itself around at more than 17 times revenues.
Press reports, deriding Rossetto's empire as a Potemkin village of money-losing ventures, were quick to seize on the outsized valuation as clinching evidence of his haughtiness and venality. But that interpretation obscured a more astonishing point: that apparently neither Goldman Sachs nor Robertson Stephens--the Wall Street professionals--dispelled Wired's distended sense of self-worth. (If Wired had gone to market at the $447-million valuation, the underwriters would have earned $4.2 million for helping Wired sell about 15% of the company.)
One Robertson insider asserts that Robertson Stephens was "less enthusiastic" than Goldman about the valuation. (Todd Carter, Robertson's senior banker on the deal, declined to comment publicly.) But Robertson Stephens may have been reluctant to express hesitation, given that a number of other investment banks were trying to get in on the potentially remunerative deal, and Robertson may have risked losing its exclusive position as the deal's comanager.
"When we originally filed, we all had stars in our eyes," one of the bankers on the deal now admits. "It was the insanity of the times."
"It was a stupid price. There was no excuse for it," says another source on the same side of the IPO team. "All companies in the process of going public have an ego. One of the jobs of the investment banker is not to get sucked into it."
Had the IPO factory kept chugging along at its furious and undiscriminating clip, the deal just might have flown anyway. But in early July, just before the team was to head out on its road show, the IPO market, and the market for Internet-related stocks in particular, swooned badly. "The pullback [from Internet companies] was so severe that it wasn't a question of trying to take prisoners," says David Menlow, president of IPO Financial Network, a data tracker in Springfield, N.J. "It was just taking the group out and shooting them." Many upcoming offerings were put on ice; even Hambrecht and Quist, the well-regarded high-tech underwriter, suspended its own IPO.
"We have decided to temporarily halt the countdown to our IPO," Jane Metcalfe announced to the disappointed Wired staff on July 15, "and wait until this storm has passed."
But two months later, when the market for initial public offerings showed signs of reviving, Wired put its IPO into gear again. According to two sources at Goldman, Rossetto began pressuring his underwriters to take a second pass at the market. (A Wired spokesperson says, "Both Wired and Goldman felt the technology market had recovered sufficiently in the fall of 1996 to warrant going back to the public market.") But now, as if awakening after a night of boozy revelry, neither Goldman Sachs nor Robertson Stephens could quite recall the enthusiasm for taking Wired public in the first place. The decision to sell Wired as an Internet play--already a stretch of the imagination--now looked like a liability: even the stock of Yahoo!, whose price had more than tripled during its first day of trading, had since tumbled back to its offering price.
