Going Public Goes High-Tech

Entrepreneur, April, 2000 by David R. Evanson, Art Beroff

Plane fares, dinners--a traditional IPO roadshow can be costly. Why not take it to the Net?

At a time when most recent college graduates are closing Internet deals, or at least trying to close Internet deals, entrepreneurs Jeremy Kraus, 24, and Sam Cohen, 23, have taken the decidedly low-tech fork in the road. But that's OK, because the pair sees plenty of opportunity--and the prospects for creating a good, old-fashioned fortune--in, of all things, ice cream.

Jeremy's Microbatch Ice Cream began in 1997 when Kraus, then an undergraduate student at the University of Pennsylvania's Wharton School of Business, wrote a business plan as part of an entrepreneurial-studies class. What Kraus came to see from his research, according to partner Sam Cohen, "was that there were opportunities for niche players to evolve into national brands if the roll-out was executed properly." More important, in the ice-cream business, there hadn't been a blockbuster success since Ben & Jerry's--and that was more than 20 years ago.

The true catalyst for the venture, however, came from the reactions to the plan. According to Cohen, "People were interested in it. They wanted to talk about it. And the more Jeremy talked about the idea and his company, the more it seemed to make good sense."

While still in his junior year, Kraus started making ice cream and looking for outside capital. Cohen started working with him, first as a volunteer, but then more formally as the pair clicked. The real turning point came at the end of 1997 and into 1998, as Jeremy's Microbatch landed its first round of outside capital from professional investors--$150,000. "After that point, we started taking the business seriously," says Cohen. "It stopped being something fun and started to be, for us, something that really had a shot."

The ante was upped a short time later in the spring of 1998, when venture firm Bluestem Capital of Sioux Falls, South Dakota, invested another $900,000. Says Cohen of his remote investor, "In the digital age, you'll go a long way to sell an ice-cream deal."

But now that some outside investors were on board, getting them back out some day--in other words, ensuring the company offered an exit strategy to cash out--became a significant consideration. Only three scenarios were now likely for Jeremy's Microbatch Ice Cream: outright failure, acquisition by a larger firm or an IPO. Failure didn't seem to be an option. Nor did working for someone else. An IPO loomed large, and the pair filed a registration statement to go public on October 25, 1999.

THE WAY WE WERE

In many respects, selling an IPO (or, for that matter, any kind of deal) hasn't advanced much since the time ice cream was invented. Entrepreneurs pitch investors and brokers directly in a tortuous rite of passage known as a roadshow, which happens during the course of two to three weeks, or in a less structured series of meetings that can stretch over a period of months.

But what has changed is the pace at which businesses are conceived, financed and rolled out. This happens fast. And what entrepreneurs are finding is that time spent on the roadshow could be better-used. Companies actually undermine their own future prospects by taking the CEO, CFO, and perhaps other key personnel out of the business at a critical juncture in its development. Yet this has to happen, because if the company is not at some critical juncture, perhaps even at the very precipice of stunning success, then why even have an offering to begin with?

Well, any tool to get investors is a good tool, and in many respects, says David Bauman, founder and president of Philadelphia-based Investor Broadcast Network, "that tool is here today, and it's called the virtual roadshow." Bauman's firm is one of several Internet firms enabling companies bidding for IPOs to put their roadshow on the Net and, the theory goes, dramatically reduce out-of-pocket expenses and the drain on management time.

According to Bauman, the mechanics of a virtual roadshow are driven in large measure by the dictates of the Securities and Exchange Commission (SEC), which regulates the selling and trading of securities. First, says Bauman, virtual roadshows, like real roadshows, are not open to the public. They are password-protected by the investment banker running the deal. In theory, the banker provides the password to accredited investors, which include institutions and licensed brokers.

Second, he says, the virtual roadshow is not always a live event. During the course of a traditional roadshow, the management team might give their presentation between 50 and 60 times to different audiences. The virtual roadshow, however, gives investors access to so-called streaming video over the Internet that is representative of a live presentation. Bauman says companies generally use the "kick-off presentation," often hosted at the investment banker's headquarters, as the one they stream over the Internet.

Another facet of virtual roadshows dictated by SEC rules is that a prospectus must be immediately accessible and the presentation cannot be copied by the viewer--presumably to cut short the possibility of the presentation getting into the wrong hands.