Christopher Byron—Netscape Founder Offers a New Cash-Burning Dot-Com

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It’s been kind of slow in the Boy Wonder Department lately, don’t you think? The boy wonders, they come and they go.

But, they never disappear entirely. No matter how bad the market gets, and how tight money gets with the venture capitalists, we’re never entirely bereft of boy wonders.

One of the Digital Age’s most bankable and enduring Boy Wonders, Marc Andreessen, has a new initial public offering by the name of Loudcloud Inc. coming to market.

In the world of the digiterati, Andreessen’s name is murmured in the same hushed and reverential tones that one speaks of Tiger Woods on the 16th green at Pebble Beach. And, frankly, how could it be otherwise?

When he was 21, Andreessen was getting ready to write the software for something known as the Mosaic Web browser, which he turned into Netscape Communications Corp. That little venture he took public at the age of 24 in a Morgan Stanley & Co. IPO, and within four months it had made him worth more than $160 million. And don’t forget, this was at a time when the dot-com bubble hadn’t even begun to swell.

Now, five years later, Andreessen is back on the IPO road show circuit all over again this time with a deal jointly promoted by Morgan and Goldman Sachs, with a secondary slot for a new underwriter, Thomas Weisel Partners LLC of San Francisco. They’re all shopping around 20 million shares of something he calls Loudcloud, at $9 per share.

One does not even have to be in the room to know that Andreessen is being warmly received. He’s so freshly scrubbed and clean cut, he looks like the kind of kid you want your daughter to bring home from Choate or St. Paul’s. No barbed-wire neck tattoos on Marc Andreessen, no eyebrow staples and nail studs. How nice for a change.

Why Thomas Weisel Partners LLC is part of the action is hard to say, since the firm is hardly what you’d call an A-list underwriter. But even Morgan Stanley and Goldman may have an uphill fight with this one. Given the current climate on Wall Street, there are plenty of institutional salespeople who would assuredly rather be hosed down with ebola virus than walk into a roomful of their firm’s institutional clients to pitch another dot-com IPO, no matter who is behind it.

And already it looks as if the sales drive has been meeting with resistance. A December amendment to the offering’s registration statement had set the number of shares to be offered at 10 million, or about 10 percent of the total, pegging the price at $11 a share, which would have put a value of $1.1 billion on the company.

But a good sign of just how little interest was developing came Feb. 16, when the underwriters filed yet another amendment to the offering, structuring the deal to sell more of the company, at a lower price, in hopes of getting clients to step up and say, “OK, I’m in.”

In the revised package, the total shares outstanding is being cut by a third, and the number of shares offered is being doubled, and their price is being marked down to an estimated $8 to $10 per share never a good sign when you’re trying to convince a buyer that the goods are premium quality.

Be that as it may, the Loudcloud offering looks, well, what should we say decent enough, I suppose, in an equivocating, thumbs-sideways sort of way.

According to the registration statement for the IPO, Loudcloud is in the “Internet infrastructure services” business. It is providing a “suite of services, which addresses the challenges of deploying, maintaining and growing Internet operations for critical business functions.”

What does that mean? I’m not sure, but I think it means this: If you’re Jack Welch and you want to have a General Electric Web site where you can sell all the thermostats and other crud you’re going to wind up with from the Honeywell deal, but you don’t want anyone coming in your office talking about “scalability architecture” and “cross-platform bandwidth deliverables” and all that sort of thing, well, you just hire the Andreessen kid’s company to come in at night like the cleaning crew from Dawn Brite janitorial, and get it all up and running after the normal people have gone home.

Is there a business for a service like that? Seems like there ought to be. But if there is, you can find scant evidence of it in the registration statement at least so far. Loudcloud has been in business since September 1999 which is to say, coming up on 18 months now and in that time it has apparently so far booked revenue of exactly $6.6 million.

If this deal had come to market two years ago, that nit would have gone unpicked by anyone except maybe the cranks here at Curmudgeonly Arms. After all, this is a dot-com IPO, don’t forget, and there are in fact plenty of big numbers on the registration statement to show investors that the company can really move the money.

The trouble is, two years ago, no one would have cared that the money just seems to be flowing one way out with little in the way of revenue flowing back in, and nothing at all in the way of cash or profits falling to the bottom line.

And that’s what we have here: an 18-month-old dot-com startup, with paid-in investor capital of $393 million some $180 million of which has already been spent generating $6.6 million of revenue accompanied by $108 million in losses. Just like the good old days: Lots of big numbers, all on the wrong side of the ledger.

If this deal gets traction, it won’t be because of Morgan, Goldman or the others. It will be because there are still people around who remember Netscape and Boy Wonder Marc Andreessen, and are ready to place a bet that the heavens will once again open, and out of the digisphere lightning will strike twice.

Christopher Byron is a columnist for Bloomberg News.

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