He perked up, however, at a Halloween party, when he heard that someone at the party had been complimenting the Virgil's cream soda being served. He perked up further when he met the man, Jim West, who turned out to be a business development consultant. West started offering him IPO advice and later came by the office. He asked Reed to call 20 names from Sharma's database of people who had responded to the neck tags. Only one of the 20 had heard back on their inquiries. And all 20 people were still enthusiastic about buying stock. Reed decided he had screwed up the offering by leaving it to Sharma and Brookstreet but could still fix it.
Four weeks later, with West's urging, Reed traveled to Las Vegas to present at a conference of the National Investment Banking Association. He begged for an afternoon slot--he's not a morning person--but he was assigned the 9 a.m. opening presentation. "It was the first time I ever got up in front of a group of investment bankers," he says. Dressed up in a short-sleeve Tommy Bahama print shirt and battling nerves from public speaking and from a general fear of bankers, he rushed through his pitch, then retreated to his Reed's booth, where he poured Dixie cups of soda and waited. He walked out of the conference with three offersto underwrite the deal. Reed chose an outfit called U.S. Euro, which co-underwrote the deal with Brookstreet. Brookstreet, wanting to earn back its money, agreed to amp up its marketing of the IPO. Sharma, frustrated with what he considered West's takeover of his role, left the company.
This being Chris Reed, though, he wasn't quite out of the weeds. In February 2006, he was heading to India for a world-peace celebration when the SEC notified him he would need to update the financials in his offering document--it contained numbers from the third quarter of 2005, and it was by then 2006. Reed says he left this to his lawyer, Horwitz, then flew to India for a few weeks. (Horwitz says his recollection is different, but he declines to comment further.) When Reed returned, he called the SEC with a minor question. The SEC official he spoke with told him the SEC hadnot cleared the offering document with the updated financials, which meant that Reed's was now selling stock illegally.
Chastened at last, Reed, instead of trying to find some eccentric solution, adhered to the establishment's rules. First, he hired a new lawyer, from an expensive firm recommended by U.S. Euro. Then he told his new lawyer to respond in the most conservative way possible. That meanta rescission, whereby Reed would return the money to the investors, though not before clearing a new public offering document to solicit the buyers to rescind, then clearing another publicoffering document to start selling again. Reed was still confounded by the absurdity of it but was willing to pay an eventual $835,000 just to get this thing over with. He waited and meditated for several months as the SEC reviewed his submitted, pulled, resubmitted, cleared, updated, rescinded, resubmitted, reupdated offering document.
Reed's went public on October 11. This time the offering was not only legal, it was successful: It sold out in two months, raising $8 million for the company and valuing it at $28 million. Reed started spending the cash right away. Besides finally paying that two-year-old Bowne bill, he began building out his sales force and making plans. He wants Reed's to be not just a natural brand but a mainstream brand, in grocery stores, delis, and restaurants across the country. The company has been growing fast. In the first nine months of 2007, the most recent figures available, sales hit $10.4 million, up 31 percent from sales in the same period a year earlier. Losses, however, were $2.6 million for that nine-month period. The stock has been trading at about $6, and it just got listed on the Nasdaq.
The cost of going public was extraordinarily high for the small company--$2.3 million, plus the $835,000 in rescission costs. That's money the company could use, because it has never stopped gulping cash. Just six months after the IPO closed, Reed's did a private placement for $9 million; at presstime the company was putting together another private placement, for $10 million. Reed's own stake is steadily decreasing: Before the IPO, he owned 68 percent of the company; after the $9 million round, he was down to 37 percent.
Reed is now 49, and he still likes wearing his tie-dye shirts, especially to his investor meetings. "I'm not really a suit-and-tie kind of guy, and I don't think my story is a suit-and-tie kind of story," he says. That's true, but he's coming around to some Wall Streetish ways of seeing things--he finally hired a CFO rather than doing the accounting himself, and he kept that expensive lawyer onboard because it looks suspicious when a public company switches lawyers every six months. ("He went beyond his estimate by three times," Reed grumbles. "But we try to educate him on the nature of our company and how we are not a $200 million company able to afford all of his excesses. He's getting better.") When he talks these days, he has a wry smile on his face and breaks into frequent guffaws, as if carried away by the improbability that he, Chris Reed, would be running a public company. You may have made me comply with your rules for the past five years, he seems to be saying. But look at what I got away with in the end.
