An IPO for Everyone

That fits in very well with the original intent of the discount, which is to make you a long-term buyer and a happy shareholder.

Companies aren't interested in getting the absolute maximum dollar amount for their stock. They want a happy bunch of shareholders. And they're more than willing to give away a modest discount if that will start shareholders off on the right foot.

What new kinds of companies can go public through OpenIPO?
To go public, you have to have a successful business model that's going to survive over the long pull. Strong brands generally have that. Normally, a strong consumer brand or a strong business brand has value under any circumstance. So we look hard in the branded area.

There are a lot of personal-services companies that build up a franchise and that can be very attractive. But the business has to have gone beyond one person's ability to do business, and it has to have evolved either brand value or franchise value, or have a position in the marketplace as a permanent player. And if you're going to have a growing business and a permanent business, you have to be pretty geographically spread out -- both in the United States and abroad. You really have to know how to do business in the world markets.

You also must have people with business sense. It's the vision of management, more than anything else, that determines how a company is going to do. Good management comes in very different packages, and what you have to do, of course, is to look at the key players' record, their background. Are they people who know how to run businesses? Are they people who know how to build businesses? And if they're real young, it can be a real problem -- the way it was in the Internet space. Many of the really good ideas were generated by the young technology people. But they just didn't know how to run a business.

Can you give an example of a good OpenIPO candidate?
Ravenswood Winery is a good example. Taking that company public got them money that really was not available privately. It was amazing to watch the impact of the public markets on Ravenswood. They had a real sales spurt. They became kind of a national name. They already had a strong brand when we took them public; that's why we took them out. But going public really added to the value of the Ravenswood brand. If three years ago, someone had said that Ravenswood was going to sell out for $150 million [Ravenswood was acquired in April by Constellation Brands for roughly that amount], you would have said he was crazy.

It was the combination of public money coming in, the exposure the public market gave them, and also being our first OpenIPO that gave Ravenswood a lot of publicity -- and that spilled over into its sales. The company grew very rapidly, and everything worked.

"I'd bet there's a huge number of companies, probably as many as 10,000, that are good enough to go public over the next decade."

Going public adds tremendous assets to a company. It gets them money -- permanent equity money -- on a very reasonable basis. It gets them publicity. It allows them to expand their management group because of stock options and equity ownership. I honestly think the companies that go public are the companies that are going to survive.

In the last few years IPOs have been built on very dramatic assumptions and very aggressive growth plans, and have been marketed to a certain kind of investor. That investor is looking for the next Cisco, the next Intel. But I'm convinced there are lots of people out there who are more than happy to buy stocks in companies they respect that aren't necessarily projecting such dramatic growth.

That's one of the reasons why I think IPOs should be auctions: to go out to a company's affinity group and the individual investors who know the company's products, and to offer stock to them. That's the whole point.

We also found that in the institutional market there are lots and lots of middle-market investment advisers. They're always looking for new and unusual ideas and are willing to look in industries that are not in vogue. The whole point of the open IPO is to go out and reach buyers who don't normally participate in conventional, investment-bank IPOs.

Where will the next batch of these IPOs come from?
A huge portion of the pipeline is technology companies, but there are businesses in other areas as well.

We've had some success in the consumer-branded areas. For example, there are hundreds of independent wineries, and among them, there are a dozen or two that have very strong brands and that could be very good candidates for the public markets.

The model that I always have in my head is an initial public offering we did at H&Q for Neutrogena, the soap people. We did an offering for them back in the '70s. CEO Lloyd Cotsen had to buy out some of his partners and his father-in-law, who was the founder. Neutrogena went public and stayed public for over 20 years. And it grew. The people who bought that stock -- there were some who held it the whole way -- were rewarded when the company sold out to Johnson & Johnson for roughly $900 million.

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