To Launch Or Not to Launch?

In the wake of numerous flameouts, the Internet IPO market essentially has
been grounded, with postponements coming almost daily and only one launch
slated for this week.

And we may not even see that IPO, from XML portal server provider Sequoia Software, should company
executives and lead underwriter Lehman Brothers opt to wait for better
conditions, whenever they might come.

Already they’ve scaled down the offering by lowering the price range from
the original $11 to $13 per share to $9 to $11 per share. With 4.2 million
shares, the net proceeds from the IPO will be $37.6 million, rather than
$45.4 million.

Still, there’s something to be said for having the spotlight to yourself.
Throw in a hot technology (extensible markup language, which is gaining in
popularity) and a highly coveted target market (B2B), and Sequoia could be
in for a lofty first-day ride under the Nasdaq symbol SQSW.

But investors no longer respond in Pavlovian fashion to every tech buzzword
(remember Linux and Java?), nor do they automatically assume that every B2B
play will be a wealth-generating winner. They’re into viable business plans
and blueprints for profitability. At least for now.

Sequoia believes it has what newly skeptical investors want. Based in
Colombia, Md., the company makes what it calls the first and only XML-based
Internet infrastructure software that allows companies to create their own
interactive e-business portals.

Corporate portals go beyond company Web sites because they enable users to
tap more deeply into corporate information resources to exchange data. XML
is a more flexible language than its predecessor, HTML, and not only
collects data from disparate sources, it allows users to interact with the
original information source.

Sequoia’s revenues in 1999 were $8.4 million, an increase of 109 percent
over sales in the previous year. But while revenues more than doubled, net
loss skyrocketed last year to $12.8 million from $3 million in 1998. Through
last year, Sequoia’s accumulated deficit was $26.6 million.

While XML may have been adopted as an Internet standard, it does not yet
enjoy widespread use, as Sequoia points out itself in its S-1 filing. “If
broad acceptance for XML does not develop,” the company warns, “our business
could be harmed.”

That’s probably an understatement. The bottom line is that investors in this
offering are being asked to make two big bets: 1) That Sequoia can overcome
competition from companies such as Open Market , Oracle
and BroadVision and
move toward profitability, and 2) XML won’t be usurped by another
technology.

For me, that’s at least one gamble too many.


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