/// An IPO That Popped, Then Fizzled [WSJ]

May 30, 2011  |  Blog

Watching the frenzy surrounding LinkedIn’s hot initial public stock offering a little over a week ago brought back memories of my own LinkedIn-like experience during the first Internet bubble.

In 1996, I left The Wall Street Journal to join Jim Cramer, Marty Peretz and a clutch of other folks to build something called TheStreet.com.

While LinkedIn founders bask in the glow of a high-profile, buzzy IPO, they’re probably wondering what their stock is really worth and when they’ll get to sell it.

Insiders usually face a six-month lock-up before they can sell shares. That’s so the market isn’t flooded with stock right after the offering. And that means a lot of LinkedIn insiders are watching the calendar. Its shares traded as high as $122.69 on opening day. They are already down in the $80s.

Hype surrounds a hot offering, such as LinkedIn, and the details of the ensuing months are covered more episodically. Folks move on to the next hot IPO — last week, a Russian Internet company, Yandex (“The Russian Google”), grabbed headlines with a hot offering. Its shares soared 40% on opening day.

With the success of LinkedIn and Yandex, other companies are busily huddling with lawyers and bankers to get in line for their own IPO. Big names out there include Facebook, of course, but also Groupon, Zynga and LivingSocial.

Anything that can fit into the Social Network/Internet box now looks like a hot ticket. But as my own experience can attest, the markets are fickle. Bankers talk about “the window,” meaning the period when the market will gobble up certain offerings. Windows, by definition, open — and close.

But for today, the LinkedIn folks are contemplating something else: sudden wealth. And that goes for the founders, with their huge stakes, as well as a lot of the rank-and-file you won’t read about. Holding shares in a hot IPO feels like “free money,” especially for people who have lived much of their life toiling for a salary and the odd bonus.

At TheStreet.com, we rang the bell at the Nasdaq on May 11, 1999. There’s no real Nasdaq trading floor — it’s an all-electronic market. You stand in front of a screen that says “Nasdaq” and push a button at 9:30.

The stock priced at $19 the night before, and we waited several minutes for that first trade. Our stock traded as high as $70 on the first day and closed at $60, giving us a market value of $1.4 billion.

My own stake in the company that first day was worth more than $10 million. That’s a lot of money, especially for a journalist. But in the grand scheme of things, it wasn’t that much. Goldman Sachs led our offering, and their private client group offered to manage executive assets. The minimum at that time: $25 million. I ended up with Merrill Lynch (still there).

Even as the stock drifted lower, friends thought of me as the $10 million man. People wrote stories about a journalist striking it rich (not supposed to happen). My college asked me to join its Board of Visitors. Nonprofits I supported had renewed interest in talking to me. My former colleagues tracked my stock riches as they slowly bled lower, extreme envy slowly evolving into schadenfreude.

I rewarded myself with a new titanium bike and a bed (I had slept on a futon until then). I ate out more, traveled in style and probably should have bought some better clothes. I also gave money away, funding a scholarship at a Midwestern university and writing checks to my high school and two colleges I attended.

Meanwhile, we watched the calendar, waiting for the six months to pass. By the time the lock-up ended, the stock stood at about $14. I never did the math at the time, but my own pile had dwindled to around $3 million. Even then, I didn’t sell. Our Dutch investors did, however, which probably should have been a sign.

I didn’t do the math because the numbers made me nervous. At times, it was hard to believe our company was worth what the market said — or that our shares would retain their value. But, as a believer in markets, I did my best to wrap my mind around the moment.

My one folly was to buy an apartment in Manhattan at precisely the wrong time. The purchase depended on the shares remaining above $6, which my accountant assured me was a sober-minded move. The shares fell to below $1 in late 2001. I sold the place, at a profit.

One of the biggest challenges with sudden wealth is how people respond to you, which is something the LinkedIn crew is probably dealing with right now.

It’s hard to ignore the idea that people are interested in talking to you because of the bucks. Mainly because it’s often true. I found myself connecting with old high-school friends and treading warily with newfound acquaintences.

I still held most of my shares after I left TheStreet.com in July 2001. I eventually sold the remainder after returning to The Wall Street Journal. I didn’t end up with the $10-million-plus that it was worth that first day of trading. But I did just fine and have no complaints.

I do miss that apartment, though.

By Dave Kansas

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