With This IPO, ‘P’ Stands for Premature

Hey, if Internet IPOs are hot, then an IPO from a company called IPOConnection that wants to sell IPOs over the Internet should really be hot!

At least that’s the premise behind a planned offering of 1.1 million shares from the St. Louis-based company, which on Tuesday filed with the Securities and Exchange Commission to trade under the Nasdaq symbol IPOC. IPOConnection intends to raise $8.8 million with the offering.

Ive seen premature IPOs before, but this one is blatantly so. Heres a company that was formed on Dec. 30, 1999 thats about 10 weeks ago and has two employees: co-founders L. Steven Goldblatt, who is president and CEO, and Lloyd Abrams, the chairman and CFO.

Goldblatt is a securities attorney who was a legal associate of late celebrity lawyer Melvin Belli. Abrams is a St. Louis-area businessman whose last job was as CEO of Bentley International, a credit-reporting service that dissolved last month after racking up virtually no revenues since 1997.

Not surprisingly, the company has no revenues to date. (Of course, the flip side is it hasn’t had time to run up any losses.)

IPOConnection plans to make money by acting as an investment bank for small and medium-sized companies seeking to go public. It hopes to tap into the discontent of small investors who are routinely frozen out of IPOs reserved for Wall Street insiders and pals of the issuing underwriter. IPOConnections solution is to offer, through its Web site, IPO shares using the Dutch Auction process.

When shares are offered via Dutch Auction, potential investors set the share price by submitting bids ahead of the offering date. This levels the playing field by treating large and small investors equally. It also reduces the odds that an IPO will result in the kind of “moonshot” upon which the insiders and fat-cats routinely make instant millions because it calibrates supply and demand.

The problem is that small investors dont want to eliminate these moonshots they just want a piece of the action. The Dutch auction, while opening up the allotment process, also greatly diminishes the upside potential that is the major draw for most Internet investors.

Finally, investors considering buying into IPOConnection should look at dilution. The companys prospectus warns that dilution will be $7.37, or 82 percent of net tangible book value. That’s an extraordinarily high dilution number that adds even greater risk to this offering.

WIll this issue be able to garner Internet market value? Discuss it here

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