Ben Horowitz on the "IPO From Hell"
We're here tonight at Madrone Studios where Sarah Lacy is sitting down to talk with Andreessen-Horowitz general partner Ben Horowitz. At Sarah's request, he indulged the audience with tales of how he became a better CEO by going through "the IPO From Hell."
For those that don't know the backstory, Horowitz was the CEO of Loudcloud, which went public at one of the roughest points in the history of public markets. If you thought that Facebook's IPO was done poorly, you clearly haven't looked into Loudcloud's history.
According to Horowitz, the company was in dire straights, was burning through cash, and the private equity market was entirely closed off for technology startups. In fact, the situation was so bad, that when Horowitz called up an investor to ask his firm to reinvest in the company, the investor responded by saying, "We think you're smoking crack."
There were so few options, in fact, that Horowitz went so far as to ask a Saudi prince for an infusion of capital. The prince turned him down.
Knowing that there was no other option, Horowitz decided to take the company public. "To give you a sense of the atmosphere, we were on the road presenting for investors as the NASDAQ was dropping everyday, as our customers were going backrupt in droves, and as no other technology company dared to file to go public" Horowitz says. "So we were doing what people thought was crazy"
While the company was trying to go public, and burning through $20 million per quarter, BusinessWeek published an article that was originally designed "to be a puff piece after the IPO," according to Horowitz. Instead, the article ended up calling the Loudcloud IPO the "IPO from Hell." To get a sense of the environment, read the original article here. The article was published one week before Loudcloud went public.
Keep in mind that this is Horowitz's first time as a CEO, and no other company than PayPal was able to successfully go public as a technology company. With only six weeks of cash and a horrible environment, Loudcloud was able to go public with no customers, and no revenue.
Ben wanted to quit. But in his words, he didn't want to be seen "as a punk." In spite of all of the waves crashing down on the company, Loudcloud went public and raised the money it needed to survive.