Vonage IPO: Next Up...Lawsuits?

Vonage continues to impress. 

• It fails to sell itself before pursuing an IPO. 
• It fails to drum up enough institutional interest in its IPO. 
• It offers to let its customers in on its IPO--and then sticks them with overpriced shares. 
• It insists on upsizing its IPO and maintaining the $17 price, hosing everyone unlucky enough to get stock.
• It says its CFO will go on CNBC to address customers who have lost more on the IPO than they've ever paid in Vonage bills. 
• It realizes that this might violate quiet period rules and cancels the CFO's appearance. 
• It reportedly suggests it will pacify "alienated" customers by paying for their IPO purchases--thus alienating non-customers whose underwater stock won't be paid for.

Depending on how this bizarre customer-IPO-insurance plan is effected, it seems possible that Vonage will bail out alienated customers with money just raised from non-customers, thus adding injury to insult.  (Where in the "Use of Proceeds" section of the IPO prospectus does it say, "A portion of the proceeds may be used to insure customers against IPO losses"?).  Given the company's phenomenal cash burn rate, such payouts will reduce the time Vonage can remain in business without another financing, thus either hastening its demise or hastening IPO-buyer dilution. 

And what happens if/when the SEC forces the entire IPO to be rescinded, something that seems possible at this point?  How much cash will Vonage have left in the bank?  (Approx. $175 million)   How long will this last?  (Approx. another four months at the Q1 burn rate).   Will an IPO remain an escape option?  (Who knows?)  If not, what will?

Meanwhile, the stock continues to tank. 

UPDATE:

The WSJ reports that Vonage now says it is going to go after customers who refuse to pony up for their IPO shares.  This is fair--the customers should pay--but it won't help customer relations.  How exactly will Vonage force its customers to pay up?  By threatening to cut off their Vonage service?  By, more likely, suing them?  (And thus prompting any customer who hasn't yet cancelled because of their IPO losses to cancel because of the lawsuit).  And, meanwhile, how will the sued customers respond?  By paying up?   By, more likely, collectively suing Vonage for blowing the IPO?  It gets better (worse) all the time...

Comments

[Victor]

First! hah. just wanted to beat out that King Troll dick.

[KING TROLL]

Fucker, second!

Who you calling a dick bro.

[ekc]

Vonage does seem to be in a great deal of trouble regarding their recent actions. I wonder though, what your reaction is to a recent article by another blogger (I'm really sorry I can't find the link right now, I will keep looking and post again when i do) suggesting that Earthlink and Vonage combine to offer the mythical "quadruple play" to customers. I don't exactly see what the benefits for earthlink would be right now, seeing as how Vonage is burning through that much cash as well as its potential problems with both the SEC and its shareholders/customers, and I'm not sure if Earthlink already offers a VoIP service (though I'd be shocked if they don't). However, it would have some benefits for Vonage, such as being able to take advantage of Earthlink's attempts to establish itself as a the major player for citywide wireles initiatives, as well as some possible integration with Earthlink's partially owned Helio MVNO, and access to all of Earthlink's landline broadband customers that don't already use it. On the surface it sounds like it could at least be an advantageous partnership, though I admit this is a very cursory view and I'm sure there are a million different reasons why the two companies should not get together (especially from Earthlink's perspective).

[Dimitar Vesselinov]

Fred Wilson:
"I think Vonage and Earthlink should merge."
http://avc.blogs.com/a_vc/2006/05/vc_clich_of_the_4.html

[Jeremy Johnson]

Who were the bookrunners on this deal?