An initial public offering (IPO) is often described as a company’s “coming out party.” It’s the moment when a successful, privately held business says, “Hey, world! Who wants a piece of the action?” Then again, you can’t really predict a party’s outcome. What if nobody shows up?
The same is true for IPOs. Sure, an IPO can bring an instant flood of capital, but it can also mean opening your company to greater public scrutiny, cranky shareholders and fickle market forces. For the following companies, their long-awaited IPOs proved to be DOA.
- Shanda Games: In China, Shanda Games is synonymous with the hugely popular online gaming market. Shanda planned a big coming out party with a U.S. IPO in September 2009. Feeling the time was ripe for a big payday, the underwriters bumped up the total number of initial shares, and they set the opening price at $12.50, the very highest end of the pricing spectrum. Unfortunately, it turned out that the underwriters had gotten greedy and finished the next day down $1.75, one of the worst IPO debuts of the year.
- Webvan.com: Webvan.com was almost too good to be true. Unfortunately, it was also a financial pipe dream. Webvan went public in 1999 and raised $375 million in the process. Yet even with this cash — plus an incredible $1 billion from private investment firms, the company was unable to be profitable. In a last ditch effort to save money, Webvan.com drastically cut the variety of products it offered on the site but still had to declare bankruptcy in 2001, a mere 18 months after its triumphant IPO.
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