Successful IPOs are born of an ephemeral blend of engaging, compelling--and often lively--story-telling, an exceptional, seasoned management team, well-calibrated partners and advisors and savvy--and lucky--timing. Zipcar stirred together a perfect mix of each of those elements when it executed its $175 million IPO last week--more than two times the size initially anticipated when it first filed to go public last year in June--delivering healthy gains to investors in first-day trading.
And this week, hot on the wheels of the Zipcar deal, came the filing to go public by online residential real estate information provider Zillow. The ink is barely dry on the underwriters' check to Zipcar for its IPO proceeds. Zillow has yet to head out on the road to meet with investors. Yet it won't be at all surprising if six months from now a healthy follow-on offering hits the market from Zipcar, while Zillow has either been acquired, pulled its deal or is simmering along as a public company with a stock that is trading sideways.
Why so quick to doubt Zillow's potential as a publicly traded company, especially when it shares a handful of Zipcar's winning attributes? The differences are subtle, yet important, and a closer look at Zillow to see how it stacks up relative to Zipcar and Open Table--another comparable winning offering--serves as a great primer on navigating the path to the public market.
It would be natural to assume that doubts about Zillow stem from the company's size and that of its proposed offering--both of which are diminutive, in public market terms. That is not the case.
While Zillow is small--with $30.5 million in revenues in 2010 and a $52 million expected deal, that closely mirrors Open Table, which had $41 million in sales and a $40 million proposed offering when it filed to go public in much more challenging market conditions in 2009. And while Zillow is not yet profitable year-over-year, neither is Zipcar--and neither was Open Table at the time of its IPO.
To the extent that size does matter, Zillow's backup crew has caché enough to offset that issue. The company has a strong underwriting team--Citibank and Allen & Company (belying IPO watchdogs' concerns that large underwriters won't take on small deals)--and exceptional venture partners, including one in common with Zipcar--Benchmark Capital.
And Zillow is not an upstart--founded in 2004, it has seven years, one front cover of Fortune Magazine and one recession under its belt--plenty of foundation building and mettle testing to be able to handle the challenges of life in the public eye.
So what's missing from the equation? A lively story. And why does it matter? Engaging story-telling is probably the least discussed and most important element of an effective public offering. It starts long before the first words of the prospectus and roadshow are drafted, told not only via words, but also through visual elements of the company's product, logo, website, even its app.
At its most basic, the story is rooted in the Company's brand, and either it has emotional resonance--a certain confident snap--or it doesn't. Just as consumers or clients respond to that emotional resonance and snap, so too do investors. After all, in many instances they are the same set of people--or they have friends or family members who are.
But a public offering adds vitally important layers of depth and nuance to a company's story--and brand. It gathers in the behind-the-scenes components of a company's infrastructure--the industry it lives in, the city it calls home, the people that run and advise it, what it has accomplished to date, what it hopes to accomplish--and presents them as a polished package to the world--and outside investors--for review, often for the first time.
Whether a growing venture-funded company or a behemoth automaker rising from the ashes, the broader, deeper story has to capture attention, hearts and minds, to spark investors' passions and inspire investor confidence for an offering to fly. If the story is well told, elements of the business can be imperfect and an offering can still be successful. Told badly--or not well-enough--and an offering will fail--or fall flat. Zipcar and Open Table both nailed it. Zillow? Not so much.
Inevitably a story poorly told belies other issues with an IPO candidate. It's not always entirely clear what those may be. Zillow's management team does not have public offering experience. More importantly, its business model seems like it's not entirely nailed down.
Maybe those are it, maybe not--only the company really can tell. And whatever the issues, they may be fixable--as the Zillow team may come to learn, if it hasn't already, patience is the one last vital contributor to conducting a successful public offering. If, in fact, the Zillow IPO starts to unfold as predicted here, it will be interesting to see what path management, its investors and underwriters choose to remedy the situation and re-tell its tale.
This post is the second of a three part series on the current Initial Public Offering climate and process. The first post in the series, was entitled What IPO Crisis? You can read it here. And the next post will explore innovations and developments in today's IPO ecosystem--beyond the much-discussed secondary markets. One or two are tools that Zillow or companies like Zillow might consider using as chapters in their story of their path to public ownership in the future. It will be published on Wednesday, May 4th.
You can read Part Three of the series, IPO Innovation, here.
Image Source: Greentech Media