All Dressed Up and No IPO

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"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.

That left Goldman Sachs with three choices about how to proceed--none of them easy. It could try to shop the deal at the original valuation. It could reconceive a more modest deal. Or, in what would be a highly unusual move, it could back out altogether. "You can't say, 'Gee, now that the go-go days are over, see ya,' " Ruth Epstein, then the Goldman Sachs vice-president assigned to the deal, explains now. So Goldman says it chose the middle road, pushing to shop the deal at a more magazine-like valuation of $150 million (or about 6.5 times the magazine's revenues)--a far cry from the $447-million valuation Wired had originally sought. But Rossetto "didn't want to entertain it," asserts Lawton Fitt, the Goldman Sachs managing director responsible for shopping the deal. (A Wired spokesperson says, "No one at Wired recalls this possibility ever being raised," but adds that in any case, "that financing strategy would not have made sense.") Rossetto was proud of his on-line properties, notes one member of the underwriting team, and wanted what he believed to be their considerable upside reflected in Wired's valuation.

There was more behind Rossetto's apparent intransigence than ego. As Fitt points out, "The company at that point was very anxious for money." In addition to supporting its money-losing side ventures, the company was planning to launch at least three new magazines with the IPO proceeds. Referred to internally as the " Wired-killers"--meaning they'd be so hip they'd put their progenitor out of business--these were going to include a design magazine with the working title Neo and a publication called The New Economy. The search for staffers was already under way, and at least one new hire, a crackerjack New York designer named Rhonda Rubinstein, had already uprooted herself and her husband from New York to move to the Bay Area. Scaling back the offering may have meant axing some of those plans--not to mention the vision of Wired Ventures as a full-scale new-media company.

In what was, in hindsight, clearly a mistake, Goldman eventually compromised on the valuation: an upper end of $293 million. Even with such a substantial haircut, the market volatility meant there would be only a 50-50 chance that the deal would go through, Goldman's Fitt says she warned Wired. "Louis knew he was taking a huge risk," confirms one Wired source close to Rossetto. (A Wired spokesperson demurs, "There's risk inherent in any transaction.") Robertson Stephens, however, apparently felt that even that compromise valuation figure was too high--and advised that the figure be reduced further, according to one Robertson insider, who notes that Wired had become "a lightning rod" for the backlash against stratospheric valuations. But Rossetto apparently believed that he had one weapon in his arsenal that couldn't be quantified: if he and his team could just get in front of prospective investors, they could sell the Wired story. Goldman agreed to let him try.

In early October the Wired management team--Rossetto, Metcalfe, chief financial officer Jeff Simon, and HotWired chief Andrew Anker--rehearsed its road-show presentation for the Wired staff. (Unfortunately, recounts Kristin Spence, Wired's second hire, they ruffled some employees by forgetting to leave out the part about the company's extremely low labor costs.) In an apparent nod to the financial markets, Rossetto trimmed his gray ponytail and even put on a suit. But as the Wired team took to the road to drum up investor interest, numerous participants say, it was clashing regularly with advisers. Of particular contention was how the final prospectus should look. The standard prospectus, with its dense gray rows of small type, "just struck us as unreadable," says one high-level staffer. Rossetto wanted his own designers to create a prospectus with a special font, distinctive page sizes, and Wired magazine's signature neon colors.

Uberconservative Goldman Sachs, however, had an altogether different design sensibility. Goldman's Epstein insisted that she'd be risking her career by putting Goldman's name on a document that strayed from the norm. "She kept saying, 'I can't do this, I can't do this, it's not worth my career,' " asserts one of the advisers on the deal. When Rossetto refused to relent, claim two participants, the Goldman team went so far as to suggest it might have to pull out of the deal. (Epstein says she doesn't recall making that threat.) Goldman's Fitt denies that her team ever threatened to walk, but she admits, "We did have very strong feelings that they [Wired] approach the financial markets in the way they're accustomed to being approached." In the end, Goldman grudgingly printed a compromise document: a white cover with Day-Glo yellow foldouts. "Was it worth it?" asks one Wired insider. "Probably not."

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