Why Major Corporations Don't Allow General Public into IPO's

Posts: 29 · Vonage Forum Junior Joined: May 30, 2006 Posts: 29

This Vonage IPO disaster is a prime example of why major corporations who want to, or are planning on going, public do not allow the general stock investor into their pre-IPO price offerings. Pre-IPO price offerings are normally allocated to the customers or financial backers of the company that wants to go public. Companies also sometimes allow their employees access to the pre-IPO price as a bonus incentive or way to keep them on. Other that that, it is very difficult, if not impossible, to get the pre-IPO price of a new stock offering from any large organization (Anyone get any of Mastercard's pre-IPO stock?) Why? Because if the stock price is calculated improperly, doesn't come out as planned, tanks, whatever, they have a small community of investors to deal with during the fallout. The investors are also told going in that there is no guarantee the stock will be profitable either short or long term. They understand the risks from the onset.

So Vonage's first mistake was offering their pre-IPO price to a group that really wasn't tied financially to the company. Yes, the people who did partake in this Customer Offering do pay monthly fees to use their service, but they don't have any actual money or capital tied directly into the company. So if something does go wrong (which it did), you have investors who feel they were misinformed or cheated because the stock didn't perform as expected. They want out because the only investment they are losing is what they had to pay for their allocation of stock. If they had other monetary obligations or personal ties (employees) to the company, they'd probably ride it out.

The second mistake Vonage made was allowing these Customer Investors to trade their stock immediately after it went public. This is one of the first IPO's I've seen that allowed you to trade your stock the same day it opened. I was able to get into an IPO stock back in 2000 during the Dot.com boom. The first and most important condition of the stock acquisition was that I wasn't allowed to sell or trade the stock for at least 120 days after the purchase. This is a normal condition of any pre-IPO stock purchase. If Vonage would have followed this course, they probably wouldn't have gotten the backlash they've received from the perturbed Customer Investors. Many of you who did get into this IPO were looking for one thing and one thing only - a way to make a quick buck. Unfortunately a pre-IPO stock is not designed for this type of invetment purchase. It's meant for the loyal investor who plans on 'riding out' the stock whether it 'Goes to the Moon' or tanks profusely. Pre-IPO stock is not for the Day Trader.

The third mistake Vonage made was essentially allowing normal customers into the pre-IPO purchase. As soon as the media caught wind of this, it pretty much killed any chance for the stock to perform well. The normal large investors saw this as a weakness in Vonage's bottom line. If Vonage was performing so well, and is as viable as they claim, why would they offer 15% of their stock to the normal 'Joe'? As I stated earlier, it's very difficult to get into this type of offering if the stock is intended to be a 'Buy Strong' type of stock. It essentially alienated the power brokers and other large market investors.

So the lesson to be learned from this is if you're not familiar with how stock trading actually works, stay out of it. The ones who are complaining, whining, and are refusing to pay for their allocations are the one's that are totally clueless how the process works. You shouldn't have gotten into the pre-IPO purchase unless you completely understood the risks. You should have also understood that Vonage's intention to allow customers access to this purchase, was they felt the customers would be the one's who would support them for the long term. Instead, you have become whining backstabbers because you didn't double your profits in two days. Do the rest of us who are true investors a favor - stick to playing the nickel and quarter slots in Vegas, and leave the stock market alone. If it wasn't for you, the stock would probably be peforming quite well.

Posts: 243 · Vonage Forum Master Joined: Jan 18, 2004 Posts: 243

exactly nice job. My anger recently was never with how the IPO was run nor with the pricing. My anger has been with the idea that some people where going to be able to walk away whole without any penalties. I was happy to see the recent statement from Vonage saying otherwise.

I like that Vonage opened up the IPO to it's loyal customers. I'm not pleased that those so called loyal customers were in this simply to flip the stock on open. Those flippers are the ones to blame for creating the high demand which increased the IPO price and because they all flipped caused the decline that we see today.

Now that they couldn't flip it for a quick buck they don't want to pay for what they are obligated to pay.

Posts: 476 · Posted: Fri Jun 02, 2006 4:44 pm Post subject:

I think it's convenient to blame the DSP participants for the decline, but not very realistic. We're talking about 13.5% of the outstanding shares here. The problems with VG stock seem pretty apparent when you examine the income statements for the past few years and the outlook for the years to come.

Posts: 4 · Posted: Fri Jun 02, 2006 11:06 pm Post subject:

gfoulks wrote:

exactly nice job. My anger recently was never with how the IPO was run nor with the pricing. My anger has been with the idea that some people where going to be able to walk away whole without any penalties. I was happy to see the recent statement from Vonage saying otherwise.

Trust me, Vonage won't penalize the people who didn't pay .. unfortunately.

It would most likely cost them more money and they would most likely face more lawsuits.. not to mention more problems with PR.

It would probably be cheaper for them to compensate the losses of the customers who did pay and stop any and all lawsuits.

Posts: 35 · Posted: Sat Jun 03, 2006 8:48 pm Post subject:

and in 4 years when Vonage is turning a profit and the stock is doing great, all the people who dumped it will be wishing they held onto it Smile

The only people who seem to be upset were the ones looking to flip it the day it IPO'd hoping it would double the same day. Now is probably the best time to buy it as it seems to have bottomed, but we all know the market is truly unpredictable. Vonage could be pushed to $50/share tomorrow by a press release and then plunge back to it's open price from people shorting the piss out of it all in the same day.