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?" If all goes well, investors scramble to buy the freshly minted stock, lifting the price through the roof and making lots of people happy -- by which we mean filthy rich -- in the process.
Then again, you can't really predict a party's outcome. What if nobody shows up? What if the caterer sneezes on the shrimp cocktail? What if the Jimmy Buffett cover band turns out to be the real Jimmy Buffett?
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...10. TheGlobe.com
Launched in 1995, TheGlobe.com was one of the first big social media Web sites, places where members around the world could create, customize and share their own content.
In 1998, at the "anything goes" peak of the Internet boom, TheGlobe.com founders floated the idea of going public, but then retreated, citing reports of a sagging online advertising market and a cooling of investor interest [source: Kawamoto]. A month later, they decided to go for it anyway, a decision that paid off handsomely -- at first.
But the party didn't last. The darling of the IPO world soon became the poster child for the dot-com implosion [source: Shim]. When the bottom fell out of the online advertising market in 2000, TheGlobe.com scrambled to find new backers and an alternative business model. By 2001, it cut had half its workforce and sold its major Web properties.
Today, TheGlobe.com is just a single page of text recounting the classic Silicon Valley saga of boom, bust, try to crawl back -- and then die.
2. The Blackstone Group
Steve Schwarzman, co-founder and CEO of the Blackstone Group, is the kind of oversized billionaire spendthrift that only Hollywood -- or in this case, Wall Street -- could create. For his 60th birthday party, the so-called "King of Wall Street" threw himself multi-million dollar bash starring Martin Short, Rod Stewart and Patti LaBelle leading an entire church choir singing "He's Got the Whole World in His Hands" [source: Gross].
Blackstone is a private equity firm specializing in leveraged buyouts (LBO), or hostile takeovers. Schwarzman and his business partner Peter G. Peterson have been buying and flipping struggling companies since the 1980s with the help of lots of cheap, available debt. The typical LBO purchase is 10 percent cash and 90 percent debt.
Private equity firms are notoriously… well, private. So it surprised many investors when Blackstone announced plans to go public in 2007. Unfortunately, in the rush to get a piece of this Wall Street wonder -- Blackstone's funds have averaged a 23 percent annual return since 1987, twice the S&P 500 average -- investors overlooked the odd details of the deal [source: Jubak].
First of all, the company being offered was a spinoff of the Blackstone Group called Blackstone Holdings. This spinoff didn't represent the vast earnings of Blackstone's investments, only the chunk of the company that managed those investments. Blackstone Holdings only took in $2.3 billion a year in fees, but the IPO underwriters still valued it at $40 billion [source: Jubak].
But the biggest problem -- and something that Schwarzman and his Blackstone insiders undoubtedly foresaw -- was that the bottom was about to drop out of the credit market, drying up the easy debt needed to make LBOs. In the IPO prospectus, Blackstone warned of uneven earnings over the next couple of months or years, but few people paid attention.
The result: Blackstone raised $4.1 billion with the IPO, Schwarzman and his co-founder Peter G. Peterson pocketed $2.6 billion, and investors ended up with a stock that lost 42 percent of its value during its first year [source: Kelly]. More than two years later, the stock is still trading between $10 and $15, less than half of its $31 IPO price.
Here's Forbes' 2004 story on Google's failed IPO:
Google's Flub, Flop And Bomb
Google's IPO didn't accomplish what it set out to do: democratize the new issues market and smooth out manic first-day trading.
Google's (nasdaq: GOOG - news - people ) IPO opened Aug. 19. It now seems like ancient history, but the deal provides a chance to see what's ahead for the IPO market: The Dutch Auction, which is intended to ensure the distribution of shares to investors whose bids are at or above the price that clears all shares in the deal, won't become the industry standard.
"In reality, the prospectus permitted Google to decide at its own whim how to set the price, allocate the shares and which investors are worthy of being allowed in the process," Renaissance Capital, an institutional money management and IPO research firm in Greenwich, Conn., said in a recent report.
It's often said that IPOs are sold, not bought. That means a road show and a Q&A with the company's top officers--in short, marketing. Google's deal ignored the spadework....
...Google left money on the table--an IPO faux pas the Dutch Auction is supposed to correct.
Google's stock opened at $100.01 after the company priced the shares at $85 each, the low end of the revised $85 to $95 range and far short of the original filing range of $108 to $135. The company also cut the number of shares offered to 19.6 million from 25.7 million. The stock hit $113.48 in early trading and recently fetched $111.80.
The rule of thumb in the IPO market is: If the underwriter increases the price range, double your order; if the underwriter cuts the price talk, cancel it. Google cut both the price and number of shares offered, underscoring the deal's weakness at its original price. Was the revised deal deliberately underpriced? Were allocations short, driving up demand for shares in the aftermarket?
In general, the smart money sat this one out but many retail investors forgot the card shark's axiom: If you can't figure out who the sucker is, it's you.
Google looked like a killer deal when the company filed to go public. It was stronger than Netscape, Yahoo! (nasdaq: YHOO - news - people ), Amazon.com (nasdaq: AMZN - news - people ) and eBay (nasdaq: EBAY - news - people ), which all launched successful IPOs.
Google was a more mature company. It had been in business six years when it went public compared with three years for eBay and Amazon, two years for Yahoo! and one year for Netscape. Google went public with recent profits of $191 million, far eclipsing eBay's $3.7 million and red ink for Netscape, Yahoo! and Amazon.
When Yahoo! went public in April 1996, it had 43 employees. Google had 2,292. Ebay had 76 employees when the company launched its IPO in September 1998; Amazon.com had 256 in May 1997 and Netscape had 257 and August 1995, Renaissance Capital said.
In short, Google had everything going for it--except the Dutch Auction.
If a competitor knocks Google off its perch in the future, it will be remembered as the once hot company with the clever name that flubbed its IPO, eventually flopped in the market and bombed the Dutch Auction to oblivion. Well, one out of three ain't bad.