I hate to beat a dead horse but James Enck has an insightful post that complements Om Malik's reading of Vonage's S-1 (beware the churn, beware the churn!). James, who covers the European telecom sector for Daiwa Securities, crunches the numbers and figures Vonage is probably worth about $1-billion. Given Vonage founder/chairman Jeff Citron owns a 41% stake and the company has raised $408-million of private equity, how much of the Vonage do the VCs own if Vonage is apparently worth $1-billion? And how much equity does Vonage have to give away if it wants to raise as much as $250-million? Somehow, the numbers don't sense unless Vonage investors (Citron, Bain Capital, New Enterprise Associates, Meritech) are willing to do a down round to complete the IPO. If this is really happening, they must really want some liquidity and/or hope the stock will rally once it starts trading. Maybe Enck's assumptions and my rudimentary math are off but there's something that doesn't jibe about this IPO. What I want to know is who's going to invest in the Vonage IPO? Is it retail investors who think the brand is valuable and are willing to ignore the fact the company is bleeding as it spends heavily on marketing to attract subscribers? Or is it institutional investors who feel obligated to invest because they've made money in other deals done by Citron and/or the underwriters? As James concludes, the timing of this offering is strange because market conditions are volatile and there seems to be little demand for tech IPOs. Call it hunch or simply skepticism but the more I think about this IPO, the more I think it could get pulled or scaled back even more from the $600-million original estimate.
Update: Here's The Street.com's take on the Vonage IPO.