Wednesday, March 22, 2006

Digital signage company Wireless Ronin getting ready for a mini-IPO?

Mini-IPO is how several articles are describing what digital signage software firm Wireless Ronin is trying to accomplish. Their goal -- about $16.5M from an offering on the public market -- is tiny compared to the amounts normally raised in an IPO. But given the company's small size, even this amount seems like it would be far too much to me.

Granted, this isn't the first time that the company has tried to do this, and they in fact have a history of coming up with unique ways to raise working capital. But even so... $16.5M? Let's stop and think about that for a second.

Typically, when a firm goes public, they put about 10% of their outstanding shares on the market. Some do as little as 3-4%, and I've seen some dotcom deals as high as 20%, but the 10-15% range seems to be the sweet spot, especially for smaller-sized deals. If 10% is worth $16.5M, Wireless Ronin has effectively valued themselves at $165M. Yeah, right. Even being exceptionally generous and assuming that investors would be willing to pay 10x 2005's gross revenues (which was hot back in the bubble years), they would had to have done over $16M worth of business last year, and that just doesn't seem very likely.

But ok, this is a much smaller, more specialized deal, and given the firm's history of raising cash, perhaps they're willing to give up a larger number of shares for the cash. So let's throw away our notion of what a "typical" IPO looks like and say that they're giving up 30% for $16.5M. That would still give them a valuation of about $55M, which still seems preposterously high to me.

Or maybe they really need the money, and are giving up 75% of their shares for it. In that case the company would be valued at about $22M. More reasonable, but even that seems like a lot for a small firm that has gone back to the private equity market numerous times to raise operating funds.

Granted, I don't know anything about their financial situation or their customer base, but just looking at the items listed on their website and in the aforementioned articles, I don't see what they have that would be worth that much. I'm not a financial advisor, broker/dealer, or anybody else qualified to give financial or legal advice, but I have been paying attention to this indutry for a while now, and that's my opinion based on years of observation.

So what will they do with that money if they do manage to raise it somehow? Well, they make their own hardware devices, so they might need the cash to build up a big inventory of players for some big customer or deal they're waiting on. But if that were the case, there are easier and better financing options available. More likely, they want to build out their own network a'la Limelight Impart Media. $16M is enough to deploy about 3,000 screens, which is a pretty beefy sized network.

Unfortunately, all we can do is speculate, since the company hasn't even filed with the SEC yet, so there are no documents on file saying what they plan to do. But my money is on the network option... they have their own technology, and they understand the value of owning screen real estate. So the question comes down to this: will they be able to find enough investors in the public markets that believe in their ability to execute?

2006-11-06 UPDATE: There's some new information available about the Wireless Ronin IPO. Read about it at Wireless Ronin updates SEC filings in preparation for going public via IPO

2006-11-30 UPDATE: Wireless Ronin somhow managed to successfully complete their IPO. Thanks again to Dave at sixteen:nine for picking this up!

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