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Edition: U.S. Article Comments (0) Editor's Choice Old worm won't die after 2008 attack on military Cancer death rates continue drop: report Mercury's origins may differ from sister planets Facebook may be good for friendships, politics U.N. climate talks make scant progress to save Kyoto Teens, young adults may drive flu epidemics: study Japan plant starts clean-up of radioactive water Comment: Amid global cybercrime, accidental hacks risk jail Video: Zoo seeks girlfriend for endangered parrot Slideshow: Chile volcano erupts Follow Reuters Facebook Twitter RSS YouTube Read IMF cuts U.S. growth forecast, warns of crisis 12:20pm EDT Rebecca Black's "Friday" video in legal battle 2:17pm EDT New York same sex marriage vote delayed 3:50pm EDT UPDATE 3-RIM swoons on grim results, shareholders fret 4:19pm EDT Quick Guide to the Greek crisis 9:21am EDT Discussed 113 Obama weighs new steps to boost jobs 72 Republicans to debate, with Romney the frontrunner 60 Delaware police interview teen about Congressman Weiner Watched Airbus' view of flying in the future Mon, Jun 13 2011 Hefner, fiancee split; Schwarzenegger mistress talks Wed, Jun 15 2011 Gloom deepens for Research in Motion 3:26am EDT small business brad feld: Your idea is not special Every day, venture capitalist Brad Feld receives pitches from entrepreneurs who think their idea is unique. "And they are wrong," he says, noting that Google was not the first search engine and Facebook was not the first social network. What matters most, he says, is "the entrepreneurs’ execution of the ideas." Full Article Top 50 small business workplaces Notes on raising seed financing IPO View: Profitless Pandora pricks the tech bubble Tweet Share this Email Print Related News Samsonite falls 11 percent in HK debut; bodes ill for Prada Thu, Jun 16 2011 Pandora's allure fades on profitability doubts Wed, Jun 15 2011 Greek debt fears sink Wall Street, more losses eyed Wed, Jun 15 2011 Analysis: Computer security attracts venture capitalists Wed, Jun 15 2011 Facebook looking at IPO in first quarter: report Mon, Jun 13 2011 Analysis & Opinion Plan to ease U.S. disclosure rules only half right Is Groupon a savior or a destroyer? Related Topics Technology » Deals » Global Deals Data 2011 Q1 » Hot Stocks » Asian Markets » Small Business » Inflows Outflows » Media » Traders work at the kiosk where Pandora internet radio is traded on the floor of the New York Stock Exchange June 15, 2011. Credit: Reuters/Brendan McDermid By Jennifer Saba and Clare Baldwin NEW YORK | Fri Jun 17, 2011 4:30pm EDT NEW YORK (Reuters) - It had all the signs of another dotcom bubble: A startup without a convincing business plan or any foreseeable chance of turning a profit saw its shares soar in the first hours after its stock market debut. The difference this time -- one that cost some investors money but provided a measure of relief to anyone worried about an overheated IPO market -- is that shares of Pandora Media Inc quickly went south. Two days after Pandora's stock debuted, it had handed back all its gains and was down nearly 20 percent from its IPO price of $16. While Pandora raised $235 million in its offering, any of the investors that bought shares at the IPO price or higher are now suffering losses -- a tough lesson in jumping into the dicey IPO market. And Silicon Valley seems just fine with that. Not due to Schadenfreude within the venture capital and start-up worlds, although surely some exists, but rather because it demonstrated sanity in the markets. "Pandora showed that if you're still trying to figure out your business model and you go public, then the market is going to call you out on it," said Bruce Taragin, managing director of Blumberg Capital. "I'm pleased there's no irrational fervor in the marketplace." Pandora, an online music service, is not alone. Its rise and fall just happened at a stunning speed. Shares of LinkedIn Corp and China's Renren Inc, social networks that debuted in May, also reversed course after strong debuts. It just took them a bit longer. Today, LinkedIn is still above its IPO price but is down 45 percent from its highs, while Renren has lost half of its value since its IPO. Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster LLC, said the pullback from Pandora and others is "a healing process" that should help the technology IPO market in the months to come. NO PROFIT? STAY HOME Indeed, the road ahead looks quite crowded for technology startups that want to go public. But for now it may be too early for judgment since only a clutch have made their public debut. "Right now it's just a handful of companies," said Eric Hippeau, a partner at Lerer Ventures. "It's not the best way to indicate where the market is going." That should change in the coming months. Groupon has filed for an IPO, while Zynga and Twitter could also announce IPO plans. Facebook would be the most anticipated, considering it has 500 million users and this year could produce what one researcher estimated would be $4 billion in ad revenue. "For the market as a whole it's actually going to be quite good," Schuster said of the Pandora debut. "You will see Groupon being much cheaper, you will see Zynga being much cheaper. I think it's going to have a big influence on the Facebook valuation as well." The trouble with Groupon and many others lining up for IPOs is that they aren't turning profits. Groupon posted an operating loss of $117 million in the first three months of the year. In its IPO filing, Chief Executive Andrew Mason said the company does not value itself in a conventional manner and suggests other ways of looking at how much Groupon is worth. Pandora, for its part, has never turned an annual profit. "What we thought before when you couldn't do an IPO is still true: If you are losing money, don't go public," said Todd Dagres, general partner at Spark Capital. The question is whether Pandora will serve as a cautionary tale for super-hyped startups and those investors willing to overlook doubtful business plans to get a piece of the action. "Everybody wants to invest in Facebook but they can't," said Dagres, citing a "halo effect" surrounding social and new media. "Other companies are riding that wave that are not leaders in the category and don't have long-term advantages. The reason is because there is a premium for growth." Perhaps the rush to sell shares to the public and raise money is sensible, considering how much uncertainty surrounds the housing markets, employment and fears about debt troubles at home and abroad. "Now is a great time to raise money, A lot of times smart entrepreneurs are raising perhaps a little bit more than they think they need because they recognize that it may not last forever," said Paul Buchheit, a partner at start-up accelerator Y Combinator and former Google engineer. "I'm not worried about a tech bubble. I'm worried that the entire economy may be a bubble," he added. Others, of course, say the IPO market is on solid footing and that much of what happened with Pandora is a pricing issue that will be sorted out with public offerings over the coming three to six months. "I don't feel we're in a bubble, I feel that strongly," said Sandy Miller, general partner at Institutional Venture Partners, an investor in Twitter and Zynga. "We're in the early stages of an IPO market, which I think will be sustainable for some period of time." (Additional reporting by Alexei Oreskovic and Sarah McBride in San Francisco, Liana B. Baker in New York; writing by Paul Thomasch; editing by Gary Hill) Technology Deals Global Deals Data 2011 Q1 Hot Stocks Asian Markets Small Business Inflows Outflows Media Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above. 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Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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