There’s a different set of rules for taking Internet companies public, as opposed to traditional firms.
“Traditionally, when you’ve got enough market share, revenue and bottom line based on the sector you’re in, then you can pull the trigger,” said Pacific Venture Group’s Layton Crouch. “Companies can’t withstand going public if they don’t have predictable revenue and profits. If you say to Wall Street, you’re going to do X, Y and Z, and you miss it, you can get brutally beaten up.”
In the Internet world, however, going public earlier is more desirable.
“It’s not that Wall Street doesn’t expect you to do something, but there’s a territory grab,” Crouch said. “If you missed the numbers but have market-share growth, there’s some forgiveness. You can bend (the rules) a lot. Growth is the thing, and your ability to acquire clients.”
The thinking is that those who grow their market share can turn it into profit later on.
“The size of the market is a big issue and the ability to show you’ve got a model that makes sense,” Crouch said.
Others note that the public markets are not as forgiving as they once were, so timing again becomes more sensitive and the windows of opportunity a little narrower.
“My perception is, there’s a much greater emphasis on having a definite path to profitability,” said Doug Wolter of Forrest Binkley & Brown. “That was not the case two years ago.”
