[Chapter 41: The Silicon Valley Gold Quest]
In the end, John took Zach and Bob with him, and the three headed toward Silicon Valley.
John actually had three main goals for this Silicon Valley trip. First, to secure a mortgage loan and find a guarantor; second, to look for connections that could link him to Netscape; and third, to get an update on Netscape's IPO progress, preparing for his own investment in the company.
All three goals pretty much depended on venture capital firms. After all, companies like Netscape usually started out by accepting venture capital. If Sequoia Capital could help him make contacts, it would be much easier.
John named this journey "The Gold Quest for Wealth." He thought that if he could get the loan and acquire some shares before Netscape's IPO, it would truly be a quest for wealth.
He had been eyeing Netscape hungrily ever since his Yahoo investment days and had been planning for this moment.
Though he didn't know exactly when Netscape would go public, it was already April, so it should be soon.
...
Speaking of Netscape's IPO, that meant talking about companies going public. John had recently been cramming on IPO basics since he might deal with these matters a lot in the future.
At this point, Netscape's public offering plan was likely at a later stage and possibly already seeking investment banks to start the "bake-off," which banks often called the entire IPO preparation process.
When a company was ready to go public, it had reached the stage where major investment banks competed to underwrite its IPO -- a process likened to a "beauty contest."
Banks vied to enter the company's meeting rooms, boasting about their services in hopes of landing the IPO underwriting deal.
It was much like a corporate beauty pageant, with the "beauties" being the investment banks. In this scenario, the company held the upper hand and could negotiate more favorable terms.
Of course, this depended on the company's prospects being promising enough to attract competing banks.
On the other hand, if the company didn't look that promising, the power dynamic flipped. The company had to court investment banks, hoping they'd take the IPO on, which meant the company would have less bargaining power and pay a higher price.
For Netscape, although John knew about its wildly successful IPO from his future knowledge, others didn't.
Based on what he knew now, the internet bubble and boom hadn't truly taken off yet. Nobody knew how the stock price would perform post-IPO -- except John.
From the investment banks' point of view, Netscape, as the first internet company to go public, wasn't exactly a safe bet.
So if Netscape went public, it probably would have to crawl to giants like Goldman Sachs and Morgan Stanley for help.
...
Moving on to the second phase, the lead investment bank would submit an S-1 registration statement to the SEC (Securities and Exchange Commission).
This document detailed the company's operations, legal issues, business divisions, fundraising needs, financials, and management team.
The SEC would then publicly release the company's info and solicit feedback -- a process usually taking several months.
This phase also showcased the investment bank's strength.
The third phase was known as the "roadshow," essentially a dividend distribution process.
The bank organized presentations about the company for institutional funds, investment groups, and even individual investors, who would buy shares before the official IPO.
Roadshows usually lasted 7 to 10 days. Investors met with the company's management and indicated how many shares they wanted and at what price. The bank then compiled this data into a book of orders -- called "building the book."
Afterward, the bank allocated shares with an eye on stock price stability and liquidity.
...
The final step was pricing -- setting the IPO issue price.
This price was generally much higher than the price investors paid during the roadshow. That's why the roadshow was seen as handing out bonuses.
Ordinary investors could buy shares on the market once it started trading. If the stock price rose, it meant a successful IPO. If the stock price fell below the issue price, it was considered a failure.
For instance, Facebook was huge in John's past life, worth tens of billions. Yet it was called one of the biggest IPO flops ever at the time. The initial price was $42 but dropped to $38 on the first day, failing to hold above the issue price.
...
John's goal this trip was to see if he could acquire some shares through venture capital during the roadshow -- or even earlier -- or maybe contact Netscape directly to buy shares.
Given that the internet wave hadn't officially taken off and the situation was unclear, if John could secure a large enough loan or direct contact with Netscape to take some shares, both Netscape and the banks might support the proposal to lower IPO risk.
After all, if the IPO failed, both the underwriting banks' and company's reputations would take a huge hit.
Of course, if he couldn't get shares beforehand, he could always invest on the open market after the IPO. Considering Netscape's situation, the stock price might climb one to two times -- or even several times -- providing handsome returns.
John also wondered what the IPO price would be. If he could buy a few hundred thousand shares cheaply, he'd be set for life -- a real fortune.
Thinking this, he chuckled to himself, feeling a bit frustrated since he hadn't even secured the loan yet and was already dreaming about buying stock.
Man, he really was broke -- otherwise, he wouldn't have to go through all this hassle.
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