The Road To An IPO: What They Ask

By Larry Bohn, CEO of net.Genesis

11:46 AM EDT Wed. May. 31, 2000

I am writing this note at 7pm, at 33,000 feet flying from Milan to London, after finishing the European leg of our road show. John Delea, our CFO, and I are noticeably tired; we fly from London to New York later tonight, and then have a limo drive us to Boston, arriving around 4 a.m. so that we can sleep, see our families, and then reload our clothes to leave for San Diego Sunday night. There is no easier or faster way to get from Milan to Boston; believe me, we tried. The only alternative was to take the Concorde but there was just no way I was going to pay 5 grand for a ride in fast jet. In case any of you are jealous of this glamorous trip, I can assure you that it gets old, fast.

Overall the trip is going great from a shareholders perspective. Our "story" is being received incredibly well. Probably the biggest risk to the whole road show so far was that I got a cold on Sunday; was feeling somewhat under the weather and my voice was getting pretty hoarse. Tea, Echinacea, and lots of water turned me around. I'm back in the ring now.

We travel with Jon Danielson, the banker from H&Q, our underwriter; he's a terrific guy: young, smart, knows our business incredibly well and is just the right mix of optimism and cynical humor. He led the ART Technologies road show and the Smarter Kids road show so he knows the ropes; is well respected, and is a good travelling companion. We make sure Jon knows that his career depends on our IPO and frequently remind him of his tenuous position.

As background to this road show, I'd just say that we are playing out a ritual that CEOs/CFOs have been doing for many years, and it is almost humorous how much a rite of passage this is. The whole purpose of the road show is to "tell the story" and "sell the deal". You start out doing the management presentations to the bankers; they market the "story" to their favorite investment firms, who agree to meet either 1/1 with us, or at extravagant lunches that H&Q hosts. The purpose of the meetings is for the investor (usually a 30-something MBA type who is technology focused, running either mutual fund money or institutional money) to get a live pitch from the management, kick the tires with some pretty predictable questions, and then decide whether they want to place an order for stock at the IPO.

We've met already with a whole range of firms and investor types. We start out each pitch by saying "we're excited to be here in ...". We started out Monday flying to Minneapolis, giving the Piper Jaffray (our co-manager) a pitch; we then quickly went on to Detroit to meet with a mutual fund company; we then flew to Chicago to have a luncheon with a couple of fund managers; that went fine; we then went on to Milwaukee via limo to visit two institutional investors. In that group, one firm is a really well known Internet investor; they hold a huge stake in some of our partners and their lead investor is a very influential guy on the street. The pitch has gone over great; better than I would have expected.

I'd say the key points that investors latch on to are:

Netgen has strong Web DNA in terms of know-how, evangelism, core vision and expertise

great story on technology (I use the scale slide that shows how much data we manage--it's huge)

great resonance on customer list and customer examples

strong partner endorsement, especially reselling opportunities.

strong resonance on strategic e-services, and helping customers with know how in emarketing

the financials are very compelling in terms of repeat sales, revenue growth, etc.

John and I look handsome in our new suits and we have this pitch down pat.

Stop: we're landing.

Start: We are now at 38K feet travelling to New York.

Let me continue with the investor feedback, etc.

The key points that come up in our "story" %85 are:

what is your revenue model going forward in terms of services/products; can you keep moving the average selling price upwards (answer: yes)

are you in the B2C market only; what do you do in B2B; this question comes up because the e-tail phenomenon is being questioned, and many e-tail stocks are underwater; we answer by describing our customer base as very diversified: .coms/.bams, B2B, B2C, Fortune1000.

are you at risk for data privacy? We get this question a lot now because of the recent press on the topic. We answer that the data is the customer's, not ours; it's like a camera filming a retail store,the film is the store's. We say that we work with DoubleClick and that we don't pool our data. But we also explain we are hugely involved in CPEX, the Customer Profile Exchange initiative, privacy-enabled standards, etc. That addresses the problem completely.

if you're so scalable why don't you have Amazon as a customer; this came up many times. The reason is that Amazon is the kingpin of retailing... I explained where we are in terms of current and future scalability; addressed how much data we can process and will be able to going forward. Again, this underscores the scalability importance.

do you do anything special with Akamai? This is a pat question for Europeans who are clearly in love with Akamai, see that they are a customer, and want to know if they are a partner. I tell them about some of our discussions with Akamai and Cacheflow

Will Oracle or Seibel enter your market; how are you a long-term defensible player? Again, this comes from investors' key concerns that someone can recreate our technology quickly. I answer that many people have tried to address this technology area and have failed or realized how difficult it is; I discuss our partnership with Oracle, etc. I give them the scalability story,what we're doing that is hugely differentiated. I also give them the "this data is different: cookies, query strings, robots, etc." This seems to address the issue, but once again, it shows how much overall scalability is a differentiator and the data we manage is really new.

Will you acquire companies: I say that our plan is to grow organically but that we may decide to acquire a services or analytics business to compliment what we do. Most investors are not in favor of very big acquisitions straight out of the block.

Do you focus on specific verticals? : I explain that we cover many verticals but that we intend to begin deeper verticalization and are segmenting the field to focus on large accounts, financial services, etc in a different way than .coms. This rings true for them, as most are believers in having a verticalized sales approach with consultative depth.

Pricing strategy; many questions on how we license the product, how the pricing scales, and how we intend to add value to existing customers.

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