In October 1995 Cliff Sharples, his wife, Lisa, and their business school buddy Jamie O’Neill pitched Austin Ventures on a start-up idea involving gardening and an untested concept known as e-commerce. They left with a check for $20,000 and instructions to investigate the idea further. More than four years later, having pocketed nearly $50 million in five rounds of financing, the three founders of garden.com presided over an initial public offering—the holy grail of high tech here and everywhere.
Three months after the big day, during the week of the last Christmas of the millennium, the Sharpleses talked to Texas Monthly Biz about their IPO: what came before, what it was like during, and what has happened since. Their story is their own, but it will resonate for their counterparts at many companies in Texas today—and for a few counterparts-to-be who are still rooting around for seed money.
Texas Monthly Biz: When did you first start thinking seriously about an IPO?
Lisa: At the beginning of 1999, once we understood that this was really working, we decided to do a private placement round of financing. We wanted to raise $12 million to $15 million—later that became $20 million—and we understood that when you’re raising that much, you need an investment bank to help you. So we hired Hambrecht & Quist, out of San Francisco. And it was right after this round that we really started to talk with our board about going public.
TMB: What were the timing considerations?
Lisa: A public offering is a very involved process for the management team. Our business is seasonal, and the busiest time is the spring. We didn’t want to take our eyes off the ball to do a road show. Whereas in the summer, everyone is done gardening—there’s a lull. Summer was one of the only times we could actually go out and do an IPO.
TMB: What do you mean by “involved process”?
Lisa: Well, you have to prepare the prospectus that will be distributed to people who want to buy shares. That takes about a month. In it is the history of the company, how much money has been put in, who the owners are, and the risk factors of the business. Most of the information is financial, but there’s also some about the way the business is run. Once you prepare that document, you have to submit it to the Securities and Exchange Commission for review. There are lots of lawyers and banks involved at this point, because everybody wants to make sure that the document is as good as it can possibly be before it goes to the SEC. The SEC has a review process that it goes through to make sure the security can be traded in public markets, and they come back with comments; the whole process can take a good number of days. When we were doing it, there were so many people filing to go public that there was a backlog.
Cliff: And while all this was going on, we decided to do another quick private round of equity financing.
TMB: That ended up being how much?
Cliff: $22 million.
TMB: Same type of investment bank deal?
Lisa: Yes, we did it with Hambrecht & Quist as well.
TMB: How did you prepare for the road show?
Lisa: We put together a presentation about the company, and then the bank called public investors they felt might be interested in participating in the IPO, and they set up meetings for the management team to go to.
TMB: How long did it take?
Lisa: About three weeks. We did the first week in Europe, then came back and did the second week on the West Coast and the third week on the East Coast.
Cliff: In London, where we started, they totally got it.
TMB: Internet-savvy folks?
Cliff: Definitely. Then we went to Zurich, and it was completely different: less feedback.
Lisa: But they asked great questions.
TMB: I think it was an interesting decision on the part of your bank to send you to Europe.
Cliff: They didn’t want to, but we told them we wanted to go. Gardening is actually more popular in Europe than it is in the U.S. Also, at some point we want to be an international company, and we wanted to start planting early seeds.
Lisa: And as a management team, you have to practice.
Cliff: The kind of momentum the investment banks set up with the schedule is interesting. You start either in Europe or with investors who are not necessarily your first targets. It’s a warmup, so you can get better at presenting. And you want to end up in Boston and New York, because that’s where the big investment houses tend to be.
Lisa: Those guys are the biggest investors in Internet stocks.
TMB: So how did it go back in the States?
Cliff: In San Francisco we had some of the best meetings with some of the brightest people. Really great chemistry.
Lisa: I thought New York was kind of cool too.
Cliff: Although we were there in adverse conditions.
TMB: How so?
Cliff: The third week of the road show was the big crash of Internet stocks. The bottom just fell out.
TMB: And you’re there to sell …
Lisa: … another Internet stock …
Cliff: … at a time when they’re all losing money. I remember at one investment bank in New York, they said, “You know, we love your business, but quite frankly, we’ve lost hundreds of millions of dollars on companies like yours in the last few days. Can you just wait? We don’t know which end is up. We think you have a great business, but your timing couldn’t be worse.”
Lisa: And we were planning to go public the following Tuesday, in the second week of August.
Cliff: There was another issue we were running up against: The rule of thumb on Wall Street is that