There’s a scene in Ben Horowitz’ book The Hard Thing About Hard Things when LoudCloud was burning through cash and financing options were challenging and so they went public. The valuation of $450mm was much lower than they had hoped and getting the deal done was hard but they got it done. It saved the company and ultimately the company, after changing its name to Opsware, sold to HP $1.6bn.
Here’s the opening text from a story about that LoudCloud IPO:
Shares in the company climbed 15 cents, or 2.6 percent, to $6.15 on a volume of 15 million shares. This gives the company a market value of about $450 million, less than half the $1.1 billion it planned for in its earlier filings.
Thursday, Loudcloud raised $150 million when it sold 25 million shares for $6 each to large investors such as mutual and pension funds. Lead underwriters Morgan Stanley and Goldman Sachs twice changed the size of the offering to make it more appealing to investors.
Initially the company planned to sell 10 million shares, or a 9.6 percent stake of the company, at a range of $10 to $12. The terms changed to 20 million shares, or a 30 percent stake, at a range of $8 to $10 in mid-February. Thursday, the company altered the terms again, offering 25 million shares at $6 each, or 34 percent of the company.
“It’s desperation,” said Dave Nadig, a portfolio manager with MetaMarkets.com, who said he will not buy the stock. “I think they’re pretty much standing on street corners trying to find people to buy. They need the $150 million to build their business.”
Sometimes you just need to get the deal done. When you are burning through cash and need to finance your company, the terms might suck, but the cash doesn’t. So you do the deal and live to fight another day. Marc and Ben did the right thing at LoudCloud and Jack Dorsey did the right thing at Square.
If you believe in your business and yourself, take the money and get back to work. A financing is not an exit. The price matters less than the cash most of the time.