2HRS2GO: IPOs carry more risks than you realize
Recent readings of IPO prospectuses give rise to amazement at how effectively the originators of frivolous shareholder lawsuits have forced companies to be so diligent.
Every time a company's stock price takes a hideous plunge, you can bet that some Lawsuit, Lawsuit & Lawsuit firm starts drawing up court papers to serve. So companies -- particularly those making their public trading debuts -- list every conceivable "Risk Factor" that could affect the price of their stock.
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It's a caveat investor tactic that never works, since the world will always have dunderheads who fail to understand that stock investing carries dangers commensurate with potential gains. But that failure of understanding doesn't stop companies from trying to fulfill their legal obligations with laundry lists of Risks:
"OUR STRATEGY ... IS UNPROVEN AND MAY NOT BE SUCCESSFUL"; "FAILURE TO MANAGE OUR GROWTH COULD STRAIN OUR MANAGEMENT AND OTHER RESOURCES"; "OUR SUCCESS DEPENDS IN PART ON OUR ABILITY TO RETAIN EXISTING CUSTOMERS"; "IF WE FAIL TO MEET EXPECTATIONS ... THE MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY."
Most of these statements are so self-evident they should be embodied in a investor's Declaration of Independence that can be distributed with every IPO prospectus. Until that happens, anyone considering an IPO investment has to slog through the Risk list.
Perhaps more shareholder outrage could be avoided if companies went into greater detail about potential, and obvious, risks of investment. So consider these proposed additions to the standard IPO prospectus template for technology companies:
IF OUR EMPLOYEES STOP BREATHING, THEY COULD DIE, WHICH COULD AFFECT OPERATIONS. Severe stress can cause people to hyperventilate and even stop breathing, leading to death. As a budding technology company, we have created an extremely stressful environment for our workers. Some of them may succumb to stress-related breathing problems. Should a majority of them perish from such occurrences, we may have difficulty replacing them, because of current shortages of skilled workers in the information technology field.
IF A COW WALKS INTO A MANAGEMENT MEETING AND EXPLODES, IT COULD ROB US OF KEY PERSONNEL. It has been demonstrated that on rare occasions, cows spontaneously combust due to internal build ups of methane gas. Given all the BS that usually fills meetings, it is possible that a cow with such a methane buildup could be attracted to the smell of a management meeeting, and erupt after entering such a management meeting. Such an explosion could harm or even kill members of our management team. We may be unable to replace slain managers on a timely basis.
IF A METEORITE STRIKES OUR HEADQUARTERS, WE MAY INCUR SIGNIFICANT INCREASES IN CAPITAL COSTS. According to Discover magazine, at least one estimate has concluded that at any time, there is a one in 20,000 chance of someone being struck by an object from outer space. Considering that those odds are better than a person's odds of winning the state lottery, and considering that someone usually wins the state lottery most weeks of the year, the possibility of a meteorite impact cannot be discounted.
A meteorite of a certain size or larger could seriously damage our corporate headquarters, which could impede our ability to conduct business. In addition, a meteorite at least two miles in diameter, if it strikes certain areas at the right angle, could wipe out most Earthly life above the microscopic level. Such mass extinctions could affect our market opportunity.
OUR CEO COULD DEVELOP SEVERE MENTAL PROBLEMS, POSSIBLY CAUSING THE COMPANY TO UNDERTAKE SUDDEN AND UNUSUAL CHANGES IN STRATEGY. Many corporate executives, particularly in the technology field, exhibit qualities associated with the pyschology profile colloquially known as "Type A". Such persons are often given over to erratic behavior, such as promoting technologies no one wants, setting unreachable financial targets, harassing employees, chasing extra terrestrials, or engaging in unusual sexual practices in full public view. We cannot guarantee that our chief executive officer will remain free of weirdness.
WE COULD BE THE TARGET OF A FRIVOLOUS SHAREHOLDER LAWSUIT, WHICH COULD AFFECT OUR ABILITY TO FOCUS ON OUR BUSINESS. Failure of investors to pay attention to and seriously consider the Risk Factors listed in this prospectus could lead to a shareholder lawsuit when our stock price inevitably declines.
Are we missing anything (Besides a brain, that is. Then again, that's obvious, so maybe it should be listed)? If so, feel free to add to the list.
Other issues:
The idea of facilitating business-to-business transactions certainly sounds good, but a good idea doesn't necessarily make a good company. You'd do better to wait and see who actually establishes itself as the market leader in this niche; it might be neither Commerce One nor Ariba, given that the field potentially includes large ERP players like Oracle and SAP. Come to think of it, these small b-to-b players might look pretty good as ERP acquisition targets -- if their market caps come down to a reasonable level.
The overall technology market remained in positive territory in mid-afternoon trading. With two hours left in the session, the Nasdaq Composite Index was up 18.92 to 2705.04, the S&P 500 had gained 4.66 to 1377.37, and the Dow Jones Industrial Average had risen 53.99 to 11023.99. 22GO>