As many dotcom chief executives out there are contemplating layoffs or bankruptcy filings to combat the dual pressures of escalating burn rates and an absence of follow-on venture funding, another option has emerged: go public immediately.
That may be an overstatement, but a pair of private equity deals for Webhire Inc. and Expedia Inc. last month gave the impression that recent public market carnage has drawn some venture firms toward active ticker symbols and swooning common stock prices, and away from beta testing and profitability predictions.
“The public markets are pretty beat up right now, and it hasn’t really transferred over to the private markets, so there’s some values out there right now,” said Ryan Moore, an associate with Softbank Capital Partners (SCP). “We closed a fund last year… with the flexibility to invest in public companies and we don’t do it a lot, but we will look.”
In fact, the Newton, Mass.-based investment outfit has already begun picking up some of the public market pieces by recently agreeing to pump $4 million into Internet recruiting marketplace Webhire. The investment is part of a larger deal that also includes an $8 million strategic play from executive search firm Korn/Ferry International and an undisclosed participation from Gemini Investors.
The transaction is expected to close within the next few months, pending shareholder approval, and the execution of some final documentation. At that point, Korn/Ferry will own 33% of Webhire’s outstanding common stock, while Softbank will have a 16% stake.
Although Webhire is the only public company in which SCP has invested, this is not the first transaction between the two. Indeed, Softbank participated in a PIPE deal with the Lexington, Mass.-based issuer last July. Within months of that transaction, Webhire’s stock began to spike, but it has since dropped back down into the low single digits.
Asked why a successful venture firm would want to take a second chance on a company that has yet to provide the type of returns generated by early-stage start-ups, Moore expressed continued optimism.
“We still think that there is a real opportunity in the e-recruiting space and that Webhire has the right technology to succeed, despite what’s happening with its stock right now,” he said.
Echoing a similar theme is Mike Linnert, general partner with Technology Crossover Ventures (TCV). His firm, which recently closed a record-breaking $1.6 billion Internet-based vehicle, announced that it had taken a $50 million chunk out of its new fund and infused it into online travel services provider Expedia.
“We look at Expedia as a venture-like deal because we expect venture-like returns,” Linnert said. “We have certainly gone through a period of time where people invested aggressively in all things Internet, and investors did a poor job resolving all that, but we think that it has plateaued.”
While that plateau for Expedia was still around $20 per share at the end of trading on July 14, TCV is apparently pleased with its newfound 7% ownership stake in the Bellevue, Wash.-based firm.
“We already had a small percentage of the company due to our sale in March of [TCV-backed] VacationSpot.com [to Expedia], but we are glad that we’ve increased our involvement,” Linnert said.
As part of the Expedia deal, which is still on hold awaiting early termination or expiration of the Hart-Scott-Rodino waiting period, Microsoft Corp. made a $10 million investment, to bring its ownership stake up to 70%.
“It’s a difficult market out there right now for follow-on offerings for Internet and e-commerce companies,” said Greg Stanger, vice president and chief financial officer with Expedia. “In addition to the underwriting fee, we would have to pay in the current market as the announcement of a follow-on typically puts some pretty significant pressure on a company’s stock.”