The IPO Marathon

The day after Patrick Scannell crossed the finish line of the Boston Marathon, he embarked on a journey that would prove just as exhausting, and exhilarating, too. On April 18, 1999, Scannell, CFO of Silknet Software Inc., and company CEO Jay Woods boarded the Concorde for London, on the first leg of the company's three-week road show.

"The road show is like a marathon," says Scannell, a veteran of two successful IP0s and nine marathons. "You run at such a fast pace, doing 10 to 12 meetings a day. But you know the end goal, so the process is pretty energizing."

The end goal is a successful IPO. Road shows are designed to generate excitement, causing demand for shares at the company's offering price to outstrip supply and drive up the opening price for the first share actually sold on the day of the IPO. Shares of Silknet Software, which sells e-business applications to Global 2000 and dot-com companies, were offered at $15 in May 1999, closing at $35 the first day of trading. The stock climbed as high as $285 per share before the company was acquired last month by Kana Communications Inc.

"Word of mouth is very quick in this business," says John Becker, CEO of Axent Technologies Inc., which sells e-security solutions. "If there's a hot company and people are interested, they start telling all their friends."

IPO activity reached an all-time high in 1999, with venture capital firms investing a record $35.6 billion in 4,006 companies, according to PricewaterhouseCoopers LLP. But since April, it has been in a holding pattern.

"Investors can't seem to decide if the correction is over or just beginning, so underwriters have adopted a very cautious stance," reported IPOhome.com on its Web site on May 3.

Timing Is Everything
In the current market, it's more important than ever that pre-IPO companies hit the road at just the right time.

"A successful IPO is much more market-dependent than anything else," says Jeet Singh, CEO and president of Art Technology Group Inc., Cambridge, Mass. ATG specializes in Web personalization, e-commerce and CRM. ATG went public in July 1999. Shares were offered at $12 and were trading at $56.63 on May 3, down from a 52-week high of $106.50.

"The market is not receptive right now," said Larry Bohn, CEO of net.Genesis Corp., shortly after the tech-heavy Nasdaq dropped dramatically in April. Shares of net.Genesis, which provides software and services to analyze behavior patterns of online buyers, were offered in February for $18 and rose to $55 the first day. By May 3, they were down to $15.25.

"The worst thing that can happen in an IPO is to have it undersubscribed," says John Capobianco, senior vice president and chief marketing officer of Bluestone Software Inc., Philadelphia, a provider of enterprise interaction management software for conducting business on the Web. "You want to be in the position of having to pare down [the number of shares investors are asking for]." Bluestone, which was offered at $15 in its September 1999 IPO, was trading at $21.63 on May 3, down from a 52-week high of $155.

But even in today's market, a road show that hits the right chords at the right time can have a significant impact on opening price. The road show is a whirlwind,often worldwide,trip, where top executives travel to tell their company's story before separate gatherings of institutional investors, securities analysts and portfolio managers. With as many as 100 meetings in just a few weeks, the road show is orchestrated by the company's lead underwriters to sell the deal,to get investors to place orders for shares of stock at the offering price.

Veterans say it's a ritual and rite of passage, complete with limousines, lavish lunches and luxury hotels. But the pace is so grueling, the process so repetitive and the days so long, it's anything but glamorous. "You need to be mentally and physically prepared," says Bohn, who kept a diary of his company's road show before it went public in February. "You are doing something that is fundamentally unnatural, giving the same pitch to investors nearly 100 times in a couple of weeks. You have to drink a lot of water so you don't dehydrate from all that talking."

Tips From the Trenches

What else do veterans recommend when hitting the road to talk up your company?

"Don't let them pick you," advises Bluestone Software Inc.'s John Capobianco, who created a "bake-off" among 10 investment banking firms.

n Best advice for pre-IPO CEOs? Keep your story straight and don't forget the analysts. Says Singh: "During the selection process, they grill you on every little thing,and they take notes on your answers. Each time you meet they ask the same questions, and they'll call you on it if your answers deviate. Promises of vast sums of money from finance guys won't help you if you can't get the analysts to bite. Without them, there's no one to talk you up in the research reports they write."

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