VentureBeat

updated

AthenaHealth, a company that sells software to doctors to manage their billing and other office tasks, is just the latest company to appear cheated by the IPO process: It’s bankers helped it price the stock at $18, but by the end of the first day of trading, it was at $35.50.

That suggests the Watertown, Mass company could have sold its shares for much more, say $25 or $30, and still had decent demand from investors.

Here’s the quick math: It sold 6.19 million shares in the IPO, so had it judged the market more accurately, it could have brought in an extra $72 million had its banks helped it price a little higher. For a company losing $10 million a year, and with a feather-weight revenue of $80 million (see its prospectus for more), that’s a big deal.

Now, predicting a market price is difficult to do. And the responsibility for the pricing decision remains the company’s. But the banks, in this case Goldman Sachs and Merrill Lynch, have huge sway in the process, and have an interest in keeping a price artificially low. They get to turn around and sell the low stock to their favorite clients, giving them a huge pop for a profit — ensuring those clients will come back and do business with the banks.

This is just the latest sign that companies should look more closely at the OpenIPO auction process, pioneered by WR Hambrecht, which instead lets the market decide on the company’s price before the IPO. By opening the process to auction, it can factor in other demand trends (Dan Primack has more on what these may have been, in Athena’s case) that a closed-book ibank process can’t. The OpenIPO is what the stubbornly independently minded co-founders at Google did, after consulting with smart minds, but few others seem to have the guts.

AthenaHealth company had raised $50 million in funding from Oak Investment Partners, Draper Fisher Jurvetson, Venrock, and Cardinal Partners. The venture firms should be taking a closer look at the IPO process too.

Correction: An earlier version of this story incorrectly said the venture firms had sold part of their holdings in the IPO. They did not.

The mobile email company, Visto, has become one of the most controversial companies in Silicon Valley.

The Redwood City company has reportedly raised another $35 million in venture backing led by new investor Altitude Capital Partners, adding to the whopping $350 million the company has already raised. It is in the red, after ten years, and hasn’t announced a major customer in several months. Its penchant to file lawsuits is also worrying, and we’ve said before that is a reason why bias has crept into our reporting about this company.

Valley gossip site, Valleywag, says the company is on the rocks, but has no facts to back it up. PE Hub’s Dan Primack says the $35 million in cash, raised in December, would seem to contradict that, however there is no one on the record explaining the terms of that cash — and it is somewhat odd it wasn’t announced. Moreover, the company has a large cash burn rate, as Dan points out, caused by service contracts it pledged to.

Now we’re hearing its investors are spreading word that a 2007 acquisition is better than 50-50 odds. Yet we’re skeptical too, given that the company had said it planned to go public last year — and nothing happened (indeed, read that previous link for notes about the company’s questionable marketing). Indeed, with its huge cash burn, it may have to be sold.

Has this company hit the wall? We’ve contacted the company, and will report back if we hear anything.

Investors include Allegis Capital, Blueprint Ventures, Draper Fisher Jurvetson, ePlanet Ventures, GKM Ventures, Meritech Capital Partners, Oak Investment Partners and Rustic Canyon Partners.