Way back in February of 2010, we talked about some ad execs who had set up a website, BuyaBeerCompany.com, asking people to help crowdfund the $300 million it was expected it would take to buy Pabst Brewing, Kickstarter-style (i.e., make pledges, with different "rewards" based on pledge amount, and pledges only due if the total amount raised). While there was some press about this publicity stunt at the time, I believe I was the only one who pointed out that this whole thing almost certainly ran afoul of SEC guidelines on selling securities -- even if it was a stunt. Apparently, the SEC agreed. It only took 16 months, but Davis Freeberg alerts us to the news that the SEC went after the ad execs, and they've now "settled."

From the description from the SEC, it sounds like no money changed hands here. It's just that these guys agreed to "cease" making such offerings. I'm assuming that the SEC spotted this independently of me bringing it up, but if I brought it to their attention, sorry guys. I can definitely see the reasoning behind the SEC getting involved here, as there's certainly a reasonable risk of fraud on some random website offering people an opportunity to buy a company. However, the internet has certainly opened up new ways to raise money -- such as via crowdfunding. While most crowdfunding offerings don't involve an "ownership" stake, and thus no equity that the SEC might be concerned about, it does make you wonder if the tight regulation from the SEC over such matters might squeeze out some interesting, and entirely legitimate opportunities.

The big Silicon Valley IPO today was LinkedIn going public. In many ways, it's a great story, in that LinkedIn isn't an overnight sensation by any means, but really was a company that built up a strong and loyal user base over many years. However, Silicon Valley has been pretty starved of "celebrity" IPOs for quite some time. Of course, in typical Silicon Valley celebrity IPO fashion, the stock shot up much, much higher than its offering price. In the past I've talked about how this is really about a company having left a ton of money on the table (i.e., LinkedIn only got $45 for all of the shares that hit the market, so the stock trades over $100 are between others, and doesn't directly -- immediately -- impact LinkedIn's cash position, though later stock sales can obviously benefit).

I've always found the obsession with the "first day pop" kind of a weird infatuation in Silicon Valley, often done by people who don't recognize what it really means (i.e., that it was priced low). However, there's been a lot of hand-wringing about how LinkedIn's valuation from the super high share price seems ridiculous based on its revenue. And, I agree. It's nearly impossible to match the valuation to the company's actual financial situation. However, this is the nature of the game. Certainly one part of the problem is that some of the buyers and sellers in the market don't really understand what it is they're buying and selling and how to value it. That's just the way things are with the stock market. However, the bigger issue is that people buying and selling the stock are really judging price on two separate factors. The underlying value of the stock is certainly important, but for many people, rather than betting on that, they're betting on everyone else. That is, they're not buying and selling based on a long-term concern for the actual value of LinkedIn, but they're trading short-term by betting on what they think everyone else will value the stock at. In the long-term, that's not sustainable, but it's the simple nature of "the game."

On the last Planet Money podcast, they explored whether or not there's a "gold bubble,", but they actually do a nice job explaining how bubbles form, even though "rational economists" suggest it shouldn't be possible. In the podcast, there's a great story about some experiments, in which students (including business students who should understand this) are given opportunities to buy and sell a single stock with a very clearly defined value... and yet bubbles still form, where people (who can't even explain why) overbid on the price of the stock, even though the real underlying value is known.

To some extent, it's that people don't intrinsically understand statistics and value. Part of it is that people get tied up in "the game." And part of it is just psychology. But the fact is that bubbles form all the time, and trying to rationally value something in a bubble isn't a particularly fruitful game in the short term, because the length and extent of a bubble are nearly impossible to determine (long term is a very different story). So, for everyone fretting about the price to value question on LinkedIn, unless you're looking for a long term investment, at this point, it's a meaningless question. What's happening now is gambling and entertainment masquerading as a serious "investment" issue.

I'm a Pandora fan. I like the service and use it sometimes. However, I remember being surprised about a year ago when the company claimed that it was profitable. It had celebrated settling its royalty fight with the RIAA/SoundExchange by saying that the agreement allowed it to become profitable, but just doing some back of the envelope math, I couldn't figure out where that profitability came from. Last year, when I saw someone from Pandora speak about how they had something like 100 salespeople all selling ads, the numbers still didn't make that much sense. That many sales people is really expensive, and knowing the online ad business, I had trouble fitting the math in line as to how the company could possibly be profitable. Between the licensing, bandwidth and staff costs, unless they were getting insanely high ad rates, it just didn't add up.

And, yet, there were various media reports insisting the company was profitable. TechCrunch, Mashable, Hypebot, News.com and others excitedly talked up how Pandora had gone from almost shutting down to profitability by the end of 2009, and all seemed to think it was a foregone conclusion that, as Pandora promised, it was going to be profitable in 2010.

Yet, on Friday, Pandora filed for a $100 million IPO, and the filings show that the company is still a long way from profitability. And, now, the company that talked up how profitable it was going to be in 2010 is claiming it might not really be profitable until the end of 2012 or later.

As expected, the SoundExchange agreement is not at all reasonable -- representing a huge chunk of Pandora's expenses -- 45% of its revenue went to SoundExchange in the first 9 months of 2010. On top of that, Pandora is currently in another fight with ASCAP, who wants a bigger chunk than it was already getting as well. And, of course, Pandora is stuck in the US unless it can negotiate better rates around the globe. Basically, copyright costs are making it so that an otherwise useful service is unlikely to survive. You can read the full S-1 if you'd like to see more.

I do hope that Pandora figures out a way to survive, and continues to improve its service. However, I'm curious why so many folks in the press were happy to claim that the company was profitable, and cheered on the fact that it was going to be profitable for 2010, when the reality shows that it still has a long way to go before it'll really be profitable.

We've already talked a bit about the Goldman Sachs/Facebook situation -- and the fact that much of it seems to involve skirting around existing regulations to try to get people to invest in Facebook without actually going public. The latest shift in this is that Goldman Sachs has announced that the offering is no longer available to US investors, and somehow it's all the NY Times' fault.

The reality is a little more nuanced. The thing is, the SEC heavily regulates the IPO process, because (officially) it doesn't want companies to abuse the process, lie to investors, trick them into buying shares in something they don't understand or that's really much riskier, etc. We've discussed in the past, and years back, VentureBeat had a great article that noted many startups appeared to violate the basics of SEC regulations even in just saying they were raising money from private investors, because just talking about it publicly can be seen as a form of a "public offering." It seems that Goldman was becoming worried that all of the public scrutiny on this deal was suddenly getting mighty close to being a "public offering" type of situation, in which the SEC could conceivably step in and claim that it needs to follow all of the standard IPO rules -- which it had not been doing. Goldman has apparently hoped to keep everything a lot more quiet, but the NY Times broke the story, and then everyone else piled on.

The whole thing remains a little silly. This whole thing has been an effort to route around the regulations from the beginning, so this is just the latest piece of that, though it may serve to annoy a lot of American Goldman clients. In the end, it wouldn't surprise me to find out that many of them figure out offshore vehicles for getting in on this deal anyway.

We've been pointing out for a while that Hulu, as well designed as the website is, is always going to run into trouble as long as it's controlled by the TV companies who won't let the company do the disruptive things it really needs to do to move the industry forward. For example, rather than really innovate, Hulu's been focused on this disastrous attempt to create a paywall, that has been such a disaster that Hulu has even admitted it sucks, and has already dropped the prices, because very, very few people subscribed. Hulu had announced plans for an IPO a while back, and there have been rumors ever since it did that Wall Street just didn't buy Hulu as a sustainable company. In fact, we've heard that the key driving force for creating the paywall was to try to show Wall Street that the company could make money beyond advertising.

However, with the failure of the paywall, the IPO plans have now gone away as well -- and with it, the hundreds of millions the company hoped to raise. The end result may mean that the company will need to go back to its current entrenched TV company owners for more cash, which will only make Hulu even more beholden to them, making it that much harder for Hulu to do the truly disruptive things it needs to take things to the next level. Instead, it's going to be some upstart (whether legal or not) that will convince people that TV online can be done quite differently than it's being done today.

Earlier this year, we noted that government contractor Booz Allen Hamilton had been making the rounds ringing up the moral panic over "cyberterrorism," without any significant evidence of it actually existing in any real form. The key to all of this was the hiring of former director of national intelligence Michael McConnell as a VP, whose main job seems to be scaring the press into repeating Booz Allen fear mongering talking points and attributing them to him without even bothering to mention that he's employed by a company that is making a ton of money from this fear mongering. And, boy, has Booz Allen raked in the money. Since the fear mongering began, the firm has secured at least hundreds of millions of dollars in contracts.

Of course, that's good for the firm, but what about its investors? Well, now that it's scared the government and the public into handing over all this cash, it looks like its investors want to cash out. The company has now announced plans for an IPO so they can walk off with the cash, built off of scaring the public over a supposed threat for which they have little actual evidence. What a deal!

This idea has been talked about for a while, but it looks like it's finally starting to move forward: creating a market for buying/selling shares in startups outside of a full public offering. As you may know, right now, (with a few exceptions) the stock in a startup is basically illiquid in that it can't be bought and sold outside of a full funding round. The downside of that is that it really does lock up the value for many employees who have to sit on the stock and hope that one day the company is sold or goes public. That's become an even bigger issue this past decade as the IPO market for tech startups has been pretty dim -- due to a combination of factors, including (among other things) the dot com bubble burst, regulations like Sarbanes Oxley and even the real estate bubble (diverted plenty of money that could have gone towards IPOs into both real estate and alternative investments).

The new plan, from a company called InsideVenture and backed by a bunch of VCs is what they're calling a "hybrid public-private offering," nicknamed a "Hippo." And it is basically just what it sounds like -- a mix between a private fundraising and a public market. Companies that go through the process will file the standard earnings reports with the SEC -- but the initial shares will be sold to member investors prior to the offering being final. I'm all for experiments of this nature, though there certainly are questions about whether or not this will really catch on. Many may see it as "what a company does if it can't IPO" which could attach a stigma to companies that go this route. Also, I still think that the old "quarterly reports" system needs a reboot involving radical transparency, so I'm not sure that reinforcing the old quarterly report system (which stunts long term vision for short term results) is really such a good idea.

Last year, when Al Gore's Current Media filed to go public, we couldn't figure out how it could possibly have a successful IPO, unless it came from the strength of Al Gore's name alone. The company wasn't profitable, wasn't receiving very much buzz, didn't seem to do anything all that unique, and its big plans to be a cable channel "for the internet age" hadn't been very successful (the internet stuff was a failure, almost all revenue came from the pure cable side). So, now that the IPO has been canceled, the company is conveniently blaming the economy, but you have to think that the company's actual prospects had even more to do with it than anything else. If the company had actually been doing well, I'd imagine it would actually be a good time to go out, as those with money actually are looking for decent buys.

The IPO market had almost entirely dried up already, before we reached financial meltdown in the second half of the year -- and the resulting financial crisis certainly hasn't made the IPO market any brighter. So, we certainly weren't expecting to hear of any internet companies trying to go public... but it seems at least one company thinks that now's the right time for an online porn company to go public. Apparently, Adult FriendFinder has filed to go public. The company, which used to be known as Penthouse Media Group until it bought the startup Adult Friendfinder not so long ago, is hoping to raise a bunch of money. I'd be surprised if this actually went anywhere. While some might claim that porn is always a growth market, it's a highly competitive one, and often seen as a bit sketchy on the business side. Plus, the underwriters are a little known Russian investment bank. On top of all that, it's looking to use the money not for expansion, but mostly to pay off debt. In this economic climate, with the current IPO window slammed pretty tightly shut, does anyone actually expect this one to go anywhere?

It's really quite fascinating to watch infrastructure bubbles, where investors overspend on infrastructure, only to go bankrupt, and have that infrastructure picked up for pennies on the dollar out of bankruptcy and turned into a useful, profitable asset. We've seen it with all the dark fiber investment in the '90s, and perhaps we're now seeing it with satellite communications as well. Remember Iridium? The huge satellite phone operation spun out of Motorola that was valued at many billions of dollars? It was supposed to replace cellular phones with satellite phones that could work anywhere in the world. Of course, there were a few problems with that plan. First, it was insanely expensive to build out and launch the necessary satellites. Then, the satellite phones themselves were huge, ugly and bulky. Third, it cost a ridiculous amount to actually use the phones. Lastly, and probably most importantly, between the time it took for Motorola to come up with this plan and to actually have something to offer the market, cell towers were spread quite widely around the globe and cellular technology had improved greatly -- basically lessening the need (drastically) for Iridium in the first place.

That caused Iridium to go bankrupt, and for a while the entire project was almost abandoned completely with plans in place to destroy the satellites. At the very last minute, though, a group of investors picked up the entire thing for $25 million (yes, the entire system, which had cost the original company $3.4 billion to build). Not only that, but part of the $25 million buyout was a $72 million contract with the US government. The new Iridium was a lot more focused. Rather than going after the entire mobile phone market, it really narrowly focused on occupations where such phones would be necessary. However, even then, we've still been skeptical that the economics could work out. After all, it's still costly to manage those satellites (which have a limited lifespan and need to be replaced) and reports indicated that the new Iridium really had very few customers.

However, the company now claims it's in pretty good shape, with good revenue and EBITDA, and is even talking about trying to go public once again. I'm sure the roadshow pitch will be quite different than the original Iridium. And, considering the name is still synonymous with one of the biggest failures in business, it will be interesting to see how investors react. Still, it's yet another example of companies buying up expensive assets for pennies on the dollar after an investment bubble, and turning those assets into something useful. Sometimes it's good to be a scavenger, apparently.