Pandora makes debut: Public venture capital returns

Pandora makes an impressive market debut as lesser quality companies file to flood the public markets. Welcome to the world of public venture capital. Hopefully you won't be a bagholder.

Online radio service Pandora is making an impressive debut as the latest entry in the initial public offering parade. Wall Street apparently can't get enough of IPOs these days. LinkedIn had a big opener. Groupon plans a big IPO that will sell well even though the company's business prospects are a coin flip at best. And now lesser quality IPOs such as Pandora are becoming almost normal.

In the end, this IPO parade is basically a pregame show for Facebook, which will represent the Super Bowl of market debuts.

Welcome to the return of public venture capital. You remember how investors funded companies in the dot-com boom that needed a lot of things to go right to become masters of the universe? Some of those deals worked out well. Others will leave you---Mr. Mainstreet investor---a bagholder, sucker and otherwise PO'ed individual.

We've seen this movie before. Company that may---or may not---make money files to go public. Price range is raised repeatedly---Pandora priced at $16 a share after an initial range of $7 to $9---and we've got headlines and a scorecard after a strong debut.

Now Pandora's prospects are well known. The company is losing dough---$6.75 million on revenue of $51 million for the three months ended March 31---and music licensing costs are going to surge. By 2015, Pandora either has a much larger revenue base or it is screwed.

Your capital will go toward growing Pandora enough to head off that licensing cost trainwreck. At least there's hope, which happens to be a really crappy investment strategy.

Let's hear it for public venture capital.

Fortunately, we've seen worse. Groupon is either the next Google or a debacle of mammoth proportions. Groupon's growth is incredible. So are the losses. Your investment---I'll include the IPO as well as the inevitable secondary offering---will help Groupon grow, build a moat around its business and raise barriers to entry. Conversely, Groupon could just blow up.

Yup. That's public venture capital kids.

Fusion-io also had a nice market debut. And yes, Fusion-io---a solid state storage in the data center play---lost $1.21 million on revenue of $125.5 million in revenue for the nine months ended March 31. All Fusion-io has to do is compete with EMC, Intel, Western Digital, Seagate and other much larger competitors.

At least your public capital will help Fusion-io to grow. You could do worse, but there are risks.

Yandex---the Russian Google---went public as the "largest Russian Internet company by revenue" and actually turned a profit of $28.8 million on revenue of $137 million for the three months ended March 31. That's great right? Well sure, but where's the upside? Does anyone really think Yandex will ever be huge outside Russia? What about the "B," "I" and "C" in the BRIC countries? And don't get me started on the crooked business climate in Russia, a topic that was listed as a huge risk factor in Yandex's IPO filing. Yandex put Russia's business climate risk in more diplomatic terms and cited "a high degree of discretion on the part of the judiciary and governmental authorities."

But that's ok, it's only public venture capital.

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