Vonage VCs have no reason to panic

Vonage Inc. may not be performing well since it launched its IPO, but the VoIP company is far from a lost cause for venture capitalists who plugged $396 million into it between 2001 and 2005.

The Holmdel, N.J.-based company went public in late May at $17 per share, giving it a market cap of about $2.65 billion. Its stock then dropped more than 12% to $14.85 per share on its first day of trading, and continued to descend. The stock was trading at just under $12 per share on Thursday last week as PE Week went to press.

Explanations for the drop vary. Some analysts believe that shares of Vonage, which has never been profitable, were priced too high at the time of the IPO. Others have pointed to Vonage’s lack of profitability, high customer acquisition costs and growing competition from bundle-ready cable providers as reasons for its poor aftermarket performance.

Then there is the matter of Vonage’s decision to sell IPO shares to existing customers. Certain customers complained last week that they didn’t learn of their specific allocations until after the stock price began to plummet, and therefore are refusing payment. In response, the company released a statement saying that customers are “obligated to purchase their share allocation from the underwriters.”

Indeed, Vonage’s VC backers cannot be pleased with these recent developments, but they also should not yet be in panic mode.

The company raised $396 million over five rounds of VC funding, with institutional investors only participating in the final four. None of the deals came cheap by venture standards, but still were priced low enough that Vonage would have to drop below $5.87 per share before Series E investments represent a loss.

Series D backers will see positive gains until shares go below $2.60 per share, and Series C investors can breathe easy until $0.80 per share.

Even if Vonage drops to the $10 per share level where many analysts thought it should have priced for the IPO, Series E investors will experience a 1.7x ROI.

That return is not like a booming Frank Thomas home run by any means, but it’s also not a strikeout.

Vonage investors include New Enterprise Associates, Meritech Capital Partners, Bain Capital and 3i Group.