Should Carbonite have postponed its IPO?

It's never fun to launch a product in the middle of an economic storm. But Carbonite, which went public today, probably didn't have a choice.

Let's say you're a boat builder. You've built a beautiful boat. It's called the SS Carbonite. It took years, but it's finally done. You've planned the launch for months, and both you and the person who bought the boat are excited to set it afloat. But on launch day, a storm blows in. The wind is whipping, the sea roiling. Only the crazy storm-watchers are out at the docks. Your boat is sea-worthy, but to launch in these conditions will be tricky and dangerous. What do you do?

If you built Carbonite, the online backup company that filed its IPO papers back in May, you launch anyway.

Congratulations, you've just turned what should have been an exciting celebration into a ghoulish spectacle. The few people not huddled indoors waiting for the storm to pass watch your launch. It doesn't sink! But it does take on some water.

Carbonite (Nasdaq:CARB), which went public today, initially expected to raise $122 million in its IPO, raised instead just $62.5 million. And that was in part because it launched into the middle of a hurricane.

As Don Reisinger reported earlier, Carbonite CEO David Friend says, "I'm not so concerned about the stock price today. I'm more concerned what the stock price will be a year or two years from now."

From the 2009 Carbonite home page. CNET

I'll grant that it's the job of a public-company CEO to maximize stock price for his shareholders, but until the moment the company went public, his job was to maximize return for his earlier-stage investors. And at that, he appears to have cost early investors 50 percent of their projected returns.

Or did he? The board's launch-day projection must have been that if the company didn't go public now and raise what money it could, it wouldn't be around to go public later when conditions were better. Carbonite has lost money every quarter since its funding, and something is going to have to change--probably something expensive--to turn this ship around, as it were. The company lost $5.5 million in the three months ending in March, according to its S-1 filing. It had just $11 million of cash when it filed, and has a large working deficit and liability position.

Instead of going public in a storm, Carbonite could also have raised additional private capital, but likely at difficult terms that would dilute private shareholders' positions in the company.

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On the product side, Carbonite is solid, but it's not exciting. It was a 2009 Webware 100 winner , but it has not transformed itself from an insurance and backup play into an app that a lot of people look forward to using every day.

I believe file sync and sharing features will become the de facto backup apps of the near future, and Carbonite will be fighting with giant companies like Apple and sexier start-ups like Dropbox for personal-computer storage solutions; and increasingly with Google, where individuals will be storing cloud-based documents.

The decision to rush the company launch into a turbulent market appears at first to be short-sighted and expensive. But if the assumption implied by this action is correct--that the markets are not going to open up to IPOs again anytime soon--the choppy launch may end up being seen as a smart play. I'll tell you this, though: The Carbonite is not a boat I'd take out for a pleasure cruise.

 

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