"I know that this is an unusual proposal," said Vringo Inc. CEO Jon Medved in response to the company's prospectus, filed with the US Securities and Exchange Commission (SEC) on Friday, to raise $12 million at a company value of $64.3 million in an IPO of shares and warrants on Nasdaq. If over-allotments are exercised by the underwriters, the IPO could reach $13.8 million.
Medved has declined to talk with media since the video ringtone sharing company filed the prospectus in a quiet period. He nevertheless believes that the IPO will be a success. Maxim Group is the lead underwriter.
Vringo's ambition is quite extraordinary, given the bleak climate on the Nasdaq primary market in the past two and a half years. Bankers have reiterated that an IPO at a company value of less than $200-250 million, before money is simply not worthwhile. Nevertheless, Vringo, a company with just $36,000 in revenue in January-September 2009, $18 million in cumulative losses, and a business model that is still uncertain, is seeking to issue of 2.4 million units each of one share and two warrants.
Vringo said that it expects $10.3 million in net proceeds from the IPO, which it will use to cover costs of revenue, investment R&D, marketing, and possible to repay part of its loans.
Medved and David Goldfarb co-founded Vrinto in 2006. The company has raised $17.5 million since it was founded. Its main shareholders are Warburg Pincus, with a 31.9% holding, Goldfarb with 7.2%, Iroquois Master Fund Ltd. with 5%. Former Shopping.com founder and CEO Dan Ciporen was Vringo's first angel investor.
A question mark hanging over Vringo's IPO, in addition to the dry numbers of its business results, is a going concern warning issued by the company's auditor, KPMG Somekh Chaikin included in the prospectus. Vringo states, "All of our audited consolidated financial statements since inception have contained a statement by our auditors that raises substantial doubt about us being able to continue as a going concern unless we are able to raise additional capital."
In conclusion, there is a good chance that Vringo's IPO will not go ahead. Although the company disclosed detailed information about its operational condition, it must meet the demands not only of private investors, but also of institutional investors, who like to close deals discretely. It could be that the prospectus is an attempt by Vringo to obtain a company value as a basis for acquisition talks, which is a common practice by companies filing for IPOs. However, if the IPO succeeds, it could be a breakthrough for other Israeli start-ups.
Published by Globes [online], Israel business news - www.globes-online.com - on February 1, 2010
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