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Once a company's shares are traded on the open market, everything is different for the firm and its founders. The responsibilities of meeting with security analysts, making presentations to Wall Street, taking inquiries from the press and major shareholders begin to eat up large amounts of time. Says Hwang of TeleVideo Systems, who associates say looks ten years older than he did twelve months ago: "Now that I've got public money it really bothers me. I feel more responsible."
The pressure to demonstrate higher earnings in every financial statement becomes relentless. Instead of using revenues to bolster research and development, some companies feel obliged to spruce up their profit-and-loss statement. Says Chief Financial Officer Victor Richmond of Williams-Sonoma, a chain of kitchen-supply stores that went public in July: "Everything we do today is done with the thought, 'Hey, somebody's going to take a look at this.' "
A major danger in the new-issues market arises when companies attempt to sell their stock prematurely. Founders, backers and investment bankers can be tempted to hurry their offerings in the rush to capitalize on rising prices and public enthusiasm. That situation occurred early last summer, when the prices of newly issued securities reached their peak. Observes Sanford Robertson, a founder of Robertson, Colman & Stephens, an investment-banking firm in San Francisco: "In the summer there was a lot of junk. There were a lot of things with too high a price and too low a quality."
Androbot, a San Jose, Calif., company, planned to go public in June largely on the reputation of its chief backer, Atari Founder Nolan Bushnell, and some 4-ft-high rolling robots exhibited at trade shows. Even though the company was less than 18 months old and had lost money on each of the 400 robots it had sold, Merrill Lynch valued the initial public offering at $73 million. Eventually the company and its bankers decided to postpone the issue.
Some business people blame such fiascoes on overeager venture capitalists who drive companies to market prematurely so that they can cash in their stakes. One of their most prominent critics is Intel President Andrew Grove. Grove accuses what he calls "vulture capitalists" of roaming around companies and tempting talented employees with promises of quick riches. He says that venture capitalists are in the process of wrecking some good high-tech firms. Of course, several of Intel's senior executives are partners in venture capital funds. Moreover, the company was started by two scientists who left Fairchild Camera and Instrument.
As the prices of some new issues shot skyward last summer, a few skeptics wondered whether the market had lost its senses. Convergent Technologies President Michels roared with laughter when he was reminded that the market had priced the company's total shares at upwards of $1.25 billion, more than, say, Revlon He joked, "The stock market is a study in exaggerated responses. It is like thinking about the price of California real estate."
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