Still, Rossetto's optimism shone through in the E-mail he sent to his employees on October 14:
Jane, Jeff, Andrew and I have been on the road a week now, and we've made two dozen presentations in 11 different cities....How's it going so far? Let's just say that in a crowded Fall market for IPOs, a lot of investors are making a point of coming out to hear our story.
By all accounts, the presentations were, indeed, well attended. But on road shows, head counts mean little. The real story is in the book.
The book is not another piece of Wall Street lingo; there's an actual, physical book that the lead underwriter carries throughout the road show. As the company meets one-on-one with institutional money managers, their tentative commitments to buy given numbers of shares--known as "indications of interest"--are jotted down in the book. For a deal to be considered viable, the indications of interest must typically outstrip the shares available to fill them by a ratio of at least three to one to ensure that there continues to be interest in the stock after the initial offering. A hot deal will be well more than three times oversubscribed.
By the early days of the road show, it must have become clear to Goldman Sachs that Wired Ventures was, simply put, a dog. Investor comments, as noted on the feedback sheets of Goldman's sales force, included "Good magazine, but the rest of the business is less compelling" and "Will need more spending discipline as a public company." At the end of October, as the road show staggered to a close amidst a welter of withering media commentary, Fitt and other members of the underwriting team met with the Wired team at their New York hotel. Together, they decided to slash the size of the offering from 4.75 million shares to 3 million shares, according to a Reuters report, and cut the asking price from a maximum of $14 to a maximum of $10 a share. The decision was a double-edged sword. "The company is now available at a better price," assesses David Menlow of IPO Financial Network, "but it's perceived to be a company that has a problem."
The gambit didn't work. Says Fitt, "Even at the revised price range, we didn't have a book." In fact, just hours before it was supposed to be officially priced for sale, the offering was still undersubscribed by 50%--laughably far away from a doable deal.
But first, a final humiliation. An E-mail message from Rossetto to the entire staff, intended to dispel the sting of the negative publicity, found its way onto the Internet, courtesy of a disgruntled former associate. As the deal headed for its demise, Rossetto's rallying cry wafted incongruously over the wires of the Internet. "Wired is on track to conclude its IPO and execute its business plan," he promised, railing against the "shoddy, if not malicious" news stories and crowing that "in the end, as F. Scott Fitzgerald put it, success is the best revenge."
Up until the final hours, members of the Wired road-show team were hoping revenge would be theirs. On the evening of October 24, they were holed up in a New York City hotel, having traveled to Manhattan to attend a cocktail party to celebrate the release of Mind Grenades, HardWired's first title. The next morning, they would visit the trading floor and watch as "WWWW"--a symbol at once evocative of the magazine's title and the World Wide Web it had done so much to glamorize--crossed the stock ticker for the first time. But toward dinnertime, the Goldman team phoned with bad news.
The theme from the surreal television drama Twin Peaks was floating through some Wired offices when an E-mail to the entire staff arrived from Jane Metcalfe. The IPO, the message announced, had been canceled.
The days since have been humbling ones. Not only was Wired deprived of the more than $60 million it had initially hoped to raise, but it had to swallow whatever it had already spent on advisers' fees and other expenses. (The prospectus suggests that those could have totaled as much as $1.3 million.) Wired magazine's U.K. edition had to be shuttered. The television show was discontinued after two episodes. Private investors did pony up $21.5 million--but on the condition, several insiders report, that the company take stringent measures to attain profitability. (To that end, the company claims it reduced operating losses from $11 million in 1996 to less than $2 million last year.) The drumbeat of criticism directed at Rossetto has been merciless.
But many of the deal's participants concede that there is plenty of blame to go around. No one will say so publicly, but privately other participants in the deal question how vigorously Goldman tried to sell Wired's stock. "Goldman didn't pull their end of the bargain," asserts one Wired adviser.
An underwriter, in a sense, has two customers: the company it is taking public, and its investor clients. Of the two relationships, the latter is arguably more important. Even though it will earn substantial fees from doing so, an underwriter will take a company public only once; it counts on institutional investors to buy its issues time and time again. As John Dyett, a banker at investment bank Salem Partners, puts it, the underwriter's sales team is "much more concerned about what Fidelity thinks about it in the morning light than what you think about it." Crucial to maintaining goodwill and credibility in the eyes of investors, of course, is not pushing investments that will lose money. Goldman Sachs, in the fall of 1996, seemed in danger of doing precisely that. It had agreed to take public a company that, as the market had plainly indicated over the summer, was not ready to be a public company.
