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Storage IPOs, brilliant or brainless

Just when we thought the fast and loose spending of the dot-com bubble was well behind us, a few recent storage company IPOs remind us that we really haven't gotten a lot smarter.

And with nouveau-billionaire companies that are still looking to turn a profit, it doesn't look like we're going to get smart real soon.

"Can you believe my board is actually complaining that we're profitable?" This was the question I was asked over dinner with a storage industry CEO last week. I can't name him because there are forces on his board who, while clearly moronic, may be able to read.

Unfortunately, yes, I can believe it. History does repeat itself, sometimes right after it's finished. We seem to have learned nothing from the lessons imposed on us during the stock market crash of 2000. We were decimated financially because we bought stock in when it consisted of five 16-year-old skateboarders, a PC and a market cap that surpassed the gross national product of Asia. Little old ladies were playing bridge and talking about Amazon's IPO. And hard-working people were lured into the frenzy by dirty, rotten stock analysts and ended up losing their retirement savings.

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It was only six years ago folks, not 60. Remember buying into those cute TV ads? Don't you remember wondering how it could be successful the first time you went to buy your dog food online only to find out that the $2 you saved was wiped out by $27 worth of shipping charges? What about the promise of the original Great idea, except you might like to see how your butt fits into a recliner before you buy it. Have you forgotten that most of the hysteria defied all logic and common sense?

I didn't. It was stupid. It forced those companies that survived to become real businesses--ones that made money and were valued by what they did on the bottom line vs. whatever pipe dream they could come up with in a deck of PowerPoint slides. My favorite idea of all time remains a PowerPoint-to-Real-Product compiler.

Venture capitalists' portfolios went from returning stratospheric gains to losing money hand over fist. The rate of IPOs went from three a day to two a year. And along the way, Darwinism stepped in and did its thing. Real businesses had to remain real businesses. I truly thought the dumb stuff was behind us.

But alas, it seems we're destined to be dumb again. After a dearth of IPOs over the last five years, we've suddenly found ourselves back on the brink of stupidity. Riverbed Technology, a terrific company, successfully went public and has a market cap of $1.2 billion. The company -- I really do love it--has small revenues and doesn't make money. I'm no Einstein, but $1.2 billion sure seems like a lot of dough. CommVault followed with another successful IPO. A good company in a tough market that hasn't made money raised a big pile of cash, most of which didn't go to the company but instead paid off investors. Double-Take Software is in registration and waiting to go out; it has made money for the last year, so I'm dying to see what kind of valuation it can pull off. Isilon Systems is also set to go.

There are a bunch of computer companies that have built annual revenues of $50 million to $100 million champing at the bit right now, which means there are a ton of venture capitalists sitting on boards telling CEOs to stop making money and start spending! Hire fast or you're fired. Spend like a drunken sailor on shore leave. Forget the fundamentals, there's gold in them thar hills!

Hey, VC/Wall St. guys, what if we encourage these companies to run real businesses and go public? How about valuing them based on what they achieve instead of what comes to you in a dream? I'm glad you're going to make money again, I really am. I'd be even happier if you could do it without being idiotic.

This column by Mr. Duplessie first appeared in Storage's December 2006 issue.

About the author:
Steve Duplessie is the founder and senior analyst for the Enterprise Strategy Group in Milford, Mass.

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