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Where are the IPOs?

In thinking about the latest speculation about Digg being on the market, it struck me that one thing oddly missing from the high-tech landscape is the IPO.

During the last dot-com boom, literally everyone did an IPO. If you have little or no revenue and no prospects of making a profit in the near future (or ever), it didn’t matter because there were suckers…er, investors willing to buy whatever you were selling. Fundamentals where thrown out the windows, and replaced by new-fangled metrics such as “eyeballs” and page views.

Today, there’s little talk about IPOs and few companies doing them. Here’s why – or least my theory on it:

1. Sarbanes-Oxley has made doing an IPO a royal pain in the butt, particularly for smaller companies who would find complying with the regulations to be expensive and time-consuming.

2. IPOs require an awful lot of management resources. After the excitement of the roadshow and the first day of trading, management has to continually pay attention to the stock and the investment community as opposed to just running the business.

3. In having to release financial results every quarter, there’s no place to hide if the business struggles. And management has to be very careful about everything they do and say so as to not violate disclosure rules. Wait until Facebook has more than 500 shareholders, and it’s force to file its financial results with the SEC.

4. Selling a company is clean and simple. You agree to the terms and, if needed, stick around for awhile and/or wait for a period of time being dumping all your shares.

This is not to suggest the tech IPO has become entirely extinct, it’s just that they have become a rarity.

More: Last week, the Classmates.com IPO was cancelled. Mashable suggests the deal wasn’t sell-able given the Federal Trade Commission is looking at the company’s practice of auto-renewing paid subscribers without their explicit consent. “There’s also the fact that Classmates.com has a very outdated business model (paid subscriptions) versus the social networking leaders of today”.

Update: It looks like NetSuite – Larry Ellison’s online accounting venture – will be going public later this week.

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  • http://alwaysnewmistakes.com Alex Barrera

    I wonder if investors are starting to say NO to properties that don’t make real money. After reading your post about Digg and the news about Classmates.com I wonder if investors are holding off.

    We still have to see how Facebook manages to make money, as well as Digg and some other websites. As far as I know, very few companies have been able to pull what Google did in the 90s (having no idea how they where going to monetize their traffic).