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Alien, the Morgan Hill company that makes low-cost radio identification tags (RFIDs), withdrew its plans to go public, after Wall Street rejected it.
We've mentioned this before, but Mike Langberg has followed up on this story, and it is an eye-opener -- and the story carries lessons for other private technology companies in this hyped valley right now. Alien seemed to bet the farm on pulling off an IPO. Now it is already in retrenchment mode, having laid off an unspecified number of its 240 employees last week. The question is, how did it get itself into that position? Well, it had raised more than $200 million from private investors. More on that a second.
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Money-losing Vonage is an example of a company that must surely regret its IPO, Mike adds, noting that this is all probably good because it is a sign that Wall Street is sane. However, keep in mind that most significant Vonage insider shareholders own shares priced at $5.87 or lower, which they bought when the company was still private. The company's stock is now trading at around $6.54, so major pain will only really begin with another drop of 67 cents. These insiders are locked up for three more months before they can sell their shares, so yes, they may eventually regret this. But as we asked before, did Vonage really have a choice? Not really, after it -- like Alien -- had raised hundreds of millions of private cash. It needed desparately to return money for its big private investors. When no buyers showed up, it had to do an IPO.
Had it slowed down from the beginning, not expanded so quickly, and tried to reach profitability earlier, there might have been less pain for all its investors and employees.
We're just looking for lessons. If you're a private company right now, and are facing investors who want to pump you full of cash -- because they have raise a huge venture fund, and say they "need to put our money to work" -- don't do it. It is hard to do in these easy-money times, but think seriously about a slower strategy.