IPOs After The Fall

Wellins: Given the tough IPO climate, companies hoping to go public need to realize that marketing to the investment community and the business press should be taken as seriously as their product marketing. It's another marketing job. It's like anything else in business. You want to take a strategic approach to it. Companies are starting to realize this.

Private companies didn't do much of that in the past. Savvier companies are focusing on this effort. Building buzz among the press and the investment community are part of that effort.

You have to understand how to craft your story for the different requirements of each sector. Each analyst--each investment bank, to a certain extent, as well--has an investment thesis. So when you're thinking about which analyst to go after, you're looking at their research. You have to do your homework, understand what will be appealing and craft your story to meet those criteria.

Rogers: So because you're marketing your company, not your product, and you're marketing it to investment analysts, not to customers, your efforts are focused on a very finite group of people. You know how many banks there are and you can fine-tune your message to each one. You're really looking to narrowcast your message.

Wellins: Right. Ultimately the company has to stand on its financials. Financials are financials. The company's business model has to stand on its own merits. But you can certainly tune your messaging to a specific analyst's hot buttons. The only way you can do that is to get out there and understand what criteria they use. You look at other deals the bank has done, you look at the analyst's coverage universe.

If somebody is an e-commerce analyst, they will have reasons to believe that certain kinds of companies will make it and certain others won't, or certain companies will become gorillas in their spaces while others won't.

Rogers: And this is something you only do as you move toward the public offering.

Wellins: The sweet spot for our business with private companies--and when this exercise becomes important--is after they've gotten a couple of rounds of funding under their belts. It's certainly beyond the seed round, it's probably beyond the series-A or the first round after that. It's more toward the mezzanine financing level; some are using the term "the expansion level." You've got your products and services, you're generating some revenue, now you're looking to take the next step.

The IPO process is part of that. Every company at least thinks about that. You know your exit strategy; you're either going to try to get bought or take it public.

Rogers: So by the time a company is ready for its offering, it's already gone through several rounds of funding and focused its message. The people in the company are familiar with the story of the company and how that sells to potential investors in general. What do you have to do then to make that pitch at the offering stage? Is the message different, or is it a question of delivery?

Wellins: Once you've already filed?

Rogers: Or even before that. I'm still shopping around for banks, let's say, going into the filing process.

Wellins: That's the crucial time to fine-tune your story.

We focus on technology. In the technology space right now, it's safe to say that the top-tier investment banks are Goldman Sachs Group, Morgan Stanley Dean Witter & Co. and Credit Suisse First Boston Corp. It's safe to say, without angering any other bankers we work with, that any company which wants to go out in the technology space would like to have one of those three banks as their lead.

So you need to understand the differences between them. You want to think about putting your deal together so you know who will be your lead and who will form your syndicate to the right of them on the IPO cover. It all starts with that lead, so you want to fine-tune your message for each of the analysts at those lead banks.

You don't want to limit your activities to that. It's essential that you communicate your story not only to potential underwriters, but to the other analysts covering the space--especially given that the quiet period lasts longer than ever now.

Rogers: So you're going to analysts who you don't expect to be in on the offering. The goal is to make sure that when you come out of the quiet period, when you begin trading, they know who you are. They understand where you fit in your space and where you might fit into their plans.

But it would seem that the road show period is onerous enough without having to go to people you don't expect to come on board. How significant are the extra presentations in making sure your company is known by the right people?

Wellins: The best example is Mary Meeker and eBay. When eBay came out, it was a Goldman IPO, so Morgan Stanley was not involved. But before the quiet period was over, Mary Meeker at Morgan put out a research report on eBay--a huge, strong buy on eBay--before the quiet period was over. She really jumped the gun, but she essentially beat the underwriting analysts.

Another interesting thing we tell our companies is this: Often, they do the road show, the IPO prices, they go through the quiet period. Frankly, the best thing they can do is get right back on the road. That's the last thing a company wants to hear. They've just been through this very arduous, onerous road show, but you want to get back after the quiet period. There's a finite number of people you will see on the road show. On the buy side, you want to get out and see the people you didn't see on the road show.

On the sell side, now that the quiet period is over and your analyst reports are out, you want to talk with the other folks. Hopefully you've met them before, and you discussed yourself before you went into the quiet period. But now that you're a public company, you want to get right back on the road and say, "Hey, I'm Ticketmaster.com. I want to go out and talk to all the analysts who cover Tickets.com." You want to differentiate your company in your own words. "Hey, you're covering Tickets.com. I've read your reports on the company, and I want to make sure you understand that I'm going to be selling against what the analysts are saying about the other companies."

The last time you saw those people could easily be six months ago. By the time you pick your bankers, you file your deal, you do the road show and go public, you can easily be in registration for six months. A lot will change. That's why having a focused marketing effort is more and more important.

Rogers: What can I do to make sure people get the right message about my company during the quiet period?

Wellins: Very little. The rule is that the SEC allows "standard course of business" activities. So you can still go to trade shows. You can still do press releases.

Before you go into your quiet period, establish a track record that you can refer back to and say, "We've always done this. When we get a new customer, we announce it. These are our big trade shows; we always go to these shows. When I sign a partnership, we announce it when the deal is closed." That establishes a pattern of communication that can be legitimately continued during the quiet period.

Where you're really limited is that the CEO shouldn't be talking to Business Week. You shouldn't be providing a level of commentary, absolutely not beyond what's in the prospectus. You shouldn't be talking to the business press at all when you're in that period. There's a little more leeway when it comes to the trade press, so you can continue activities there.

Rogers: So it's 25 days after pricing. The quiet period is over. What do I do now? What should be the first two or three things I say, and to whom should I say them?

Wellins: There are a number of factors to consider. There's a lot of strategy involved. One factor is when you're going to report your first quarter after the quiet period. One factor is strictly timing.

If your IPO is in September, and you're a technology company, you're expected to report your third-quarter results the first week in October, you're going to be limited in the timing of your communications.

For timing of communications, you have to look at a variety of factors. One is when your quarterly announcement comes in relation to the end of the quiet period. Say I make widgets. I'm going to look at my calendar and say, "OK, I have a series of press releases. Here's the news I will put out over the next two or three months."

How will I time that? Some information I will let out during the quiet period. The quiet period is something of a misnomer these days; if you don't put out press releases during the quiet period, your stock is liable to slide. You have to put out some news. On the other hand, you want to save some news until you can really talk about it. So you might want to put out releases that aren't as materially significant and save larger news.

You might want to save a quality press release that you think will have an impact on your business until the few days right after the quiet period. Then you can really talk about it.

Your first priority is getting some good news out and maximizing the impact of it as much as possible, whether it's with a conference call or an appearance in the media. Then, depending on the time of year, relatively soon after the quiet period you want to get back out on the road. Your bankers, if they're doing their jobs, will be willing to take you back out on the road to see some of their accounts on the buy side. If you have good underwriters, on the sell side, you want to get out to see the other analysts.