Dotcom Shows How2 Choose Private Equity Over Public Offer

Bucking the current trend toward get-rich-quick IPOs, Inc., an online provider of post-purchase customer care solutions, recently scrapped its initial public offering plans in favor of an additional round of private equity.

In a letter to the Securities and Exchange Commission, company counsel David Wood wrote, “The company has experienced significant changes in its business since filing the Registration Statement in October, and does not believe that it is in the best interest of the company nor in the best interest of its investors to proceed with a proposed public offering at this time.”

While Wood’s letter didn’t go into further specifics, one source said there were serious concerns raised over the execution abilities of underwriter The Robinson Humphrey Co. In fact, the source also reported that the new private equity agreement effectively requires to choose from a select list of six top-tier underwriters when the company chooses to refile with the SEC.

Robinson-Humphrey, a wholly owned subsidiary of Salomon Smith Barney, has underwritten just six IPOs since 1997, according to Thomson Financial Securities Data, and is said to be excluded from the list of investment banks available to Representatives of the Atlanta-based bank declined repeated requests for comment on this story.

When filed this past October, the IPO was slated to raise $125 million for, with a majority of the proceeds being used to finance an aggressive marketing campaign. The company, however, experienced enough post-filing success in attracting clients that the IPO amount would have been lowered substantially, said Steve Solomon, chief executive at

“We recognized that we really didn’t need all of the capital we were originally looking for through the IPO market,” Solomon said. “But we were still ready to go until the [private equity] opportunity with [TH Lee Putnam Internet Partners] came along, and we were so impressed by them.”

TH Lee led the $36.5 million venture round with a $20 million investment. Additional participants included Dain Rauscher Wessels Investors, Seaboard Ventures and existing investor Watershed Capital.

“We felt the company could more easily carry out strategic changes, such as broadening its business model, as a private company,” said Douglas Hsieh, vice president at TH Lee. He added that recently has shown exceptional growth and real substance in a market that Solomon referred to as “broken, fragmented and largely forgotten.”

Hsieh’s sentiments were echoed by another private equity backer, as well. “As a private equity investor, we’re glad that [] finally saw the light and decided to hold off and wait for a strong IPO and take [additional] private equity money this time around,” said David Lundeen, managing partner of Watershed Capital.

Proceeds will be used for marketing, sales and to sustain growth. Prior to this financing, had raised $28 million in venture capital.