Why WhiteGlove Health kept trying to go public in a volatile market.
Venture capitalist Bill Gurley says that if a company files for an IPO, it had better price. That appears to be a message taken to heart by WhiteGlove Health Inc., an Austin, Texas-based provider of mobile primary and chronic medical care services. The company filed for its IPO back in May, and then put itself on the pricing calendar at least three different times.
In the end, however, persistence cannot necessarily overcome a dearth of willing investors. In fact, no company has priced an IPO in more than a month. WhiteGlove officially canceled its effort last week, citing “unfavorable market conditions.”
So I rang up WhiteGlove CEO Bob Fabbio, a former venture capitalist who won the E&Y Entrepreneur of the Year Award in 1997 for Tivoli Systems. What follows is an edited transcript of our conversation:
Fortune: WhiteGlove is a relatively young company that hasn’t yet turned a profit. Why file for an IPO in the first place?
Fabbio: When we made the decision back in February, the IPO window had opened up. We also felt we had a great story to tell, because we were a disruptive innovator focused on U.S. healthcare – which is one of the largest spends on the planet.
But we also were quietly operating mostly in Texas, and really wanted to launch a national campaign. Private investors were chasing us to help make that happen, but we felt that an IPO would be a more rapid way to build awareness. When we’re talking to employers, it’s about helping to manage the health of their employees and dependents. It’s sensitive stuff, and they look at you differently if you’re public or planning to go public. You are considered more credible.
As for profitability, our lack of profit is because we’re choosing to reinvest. Plenty of disruptive innovators – including SalesForce, Amazon and ZipCar – weren’t profitable when they filed to go public. And we’re targeting a larger overall market than any of them.
You originally filed to raise just $32 million and then pared that back. Why so little?
We expand in markets in very asset light way. We’re turning people’s living rooms and conference rooms into our treatment centers. For us, we can go into any market and launch our service in less than 5 weeks and spend less than $60,000 in initial cash outlay. Then we invest another $700,000 over several months to have the market generating profit.
You chose to use a Dutch auction process, rather than traditional IPO. In retrospect, was that a mistake?
What’s the value of a company that can help change healthcare in America for the better? How do you value that? The classic way to go public always leaves money on the table, so when the market was so frothy, we thought an auction was both workable and would ultimately reflect the true value of the business.
I can’t tell you if would have worked or not because we didn’t get to live in the market we were in when making the decision. I got on an airplane the second week of July, turned to our CFO and said: “This is terrific, IPOs are flying off the shelves. We timed this perfectly.” By the end of that month the market had dropped 1,800 points.
When the market volatility began, you could have postponed indefinitely. Or canceled altogether. Why keep putting yourselves on the calendar?
The weekend between the first two weeks of our roadshow was when it looked like the U.S. government would go out of business if Obama and company didn’t figure out our debt problem. So we had to sit through that. Our hope was that once Obama announced the plan, the market volatility would settle down. But then the market responded poorly to the plan and we got caught in an up-and-down. We didn’t know if it was temporary or permanent, so we pushed it out. We had investor interest, but you can’t price a deal when the market is going down 300 or 400 points in a day.
But it kept happening, and we considered postponing. But after Labor Day weekend is historically a good time for companies to go public and we saw the stock market begin to level out a bit. In fact, the vast majority of what was lost in July and August came back after Labor Day, so we decided it was worth one more try.
But no one had actually tested if the IPO market was open or not. So we went out, had a great set of investor meetings and built a book, but to get a deal done we would have had to lower price to point where it didn’t make sense. Wall Street investors just haven’t quite recovered. So that’s when we withdrew.
In your opinion, can any company price an IPO right now?
I’m sure there are companies that can, but the question is if they can get the price they’re hoping for. It’s kind of like the housing market: You can sell your house, but you’re probably not going to like the terms.
So are you now raising private capital?
Yes, we’ve already begun. After you’ve talked to 100 investors, there are plenty you can go back to. We began raising money in the terrible economy of 2008, and by this point have raised four private rounds in less than eight weeks each at our own terms. We feel confident we can do that again.