Dear Investment Bankers: Please Do Not Ruin the Current IPO Window

Includes: AONEQ, OPEN
by: Michael Eisenberg

Ahead of the live discussion panel taking place today on Seeking Alpha* about the thawing of the IPO market, I would like to make a plea to the investment banking community. Please do not rush "unsuitable companies" to the public markets to take advantage of the IPO window. That is the best way to close it again.

One of Benchmark's companies (NASDAQ:OPEN) officially reopened the IPO window with its IPO in the first half of 2009. The company performed well on the road show and the stock has performed well in the aftermarket, up over 25%. A123 (AONE), the first clean tech company to burst through the window last year is also holding up well (Chart).
However, with two quality companies through the gate, bankers and investors are running to IPO their companies. A list of Q4 filings raises some questions about the quality of IPOs being rushed to market. Two more companies have already filed in the first week of 2010. If history is any guide, CEOs of high quality companies and venture capitalists should be worried.
The IPO markets are open because institutional investors need new product, growth stories that represent the growth of the internet, cleantech, mobile computing etc. for the next decade. What we and they do not need is unprofitable companies, without clearly profitable business models, that consume cash and need to source that cash in the public markets to survive. Slow growth companies will also find it tough in the demanding public markets. Our memory is short but we have been through this in 1999 and 2000, when bankers brought all the Pets companies and sock puppets public, ultimately cratering and ruining the IPO market for years. As I read Sellout by Charlie Gasparino, it is obvious that the same syndrome manifested itself in the bond market, where bankers rushed much subprime debt to market without calculating both the risk of the individual bonds and slices nor the risk to overall market liquidity from these low quality deals.
So while we all look for this decade's "Netscape Moment," I beg of both bankers and investors to keep the quality bar high so we can enjoy a sustainable open IPO window for great entrepreneurs for many years to come.
* Author's Full Disclosure: Seeking Alpha and OpenTable are Benchmark Portfolio companies.