The voice of reason
Not everyone, of course, is willing to indict the entire underwriting industry. Some Web executives defended the banks that helped bring their companies to the public market.
"When we first met, (Morgan Stanley) told us we weren't ready to go public and set realistic goals for us," said Mark Cuban, the founder of Broadcast.com. "When we hit (the goals), we pushed forward on the IPO. They did a great job."
Cuban's experience, however, may be colored by his eventual financial success: He was one of a handful of executives to cash out before the bubble burst, making him an instant billionaire. Most executives and venture capitalists expressed frustration at any delays, believing the time was ripe to collect a windfall from their investments.
"The underwriters tried to keep some semblance of a financial model, but they underwent tremendous criticism for not pricing stocks higher," said David Menlow, president of the IPO Financial Network.
Pricing remains a controversial issue that is moving from Wall Street to the courts. A growing number of companies are facing class-action lawsuits filed on behalf of shareholders alleging that preferential deals with underwriters led to artificial demand and pricing.
"They decided that the best way to create a hot market is to make it look like a hot market--by creating great expectations of demand and excitement," Isquith said of the underwriters. "Whether they exercise their responsibilities in this market to people they were selling stocks for is a question of some import."
Many underwriters said their actions were dictated by the companies they represented. For example, setting the share price of an IPO based on projected traffic growth was always a point of contention. If an investment bank pushed too hard to scale back a company's projections, the start-up could just as easily approach a rival bank during the IPO mania.
"From a research point of view, you are trying to make sure the company can meet its projections. So you are trying to cut back on their projections, and that cuts down on their valuation," Preissler said. "That is where the biggest battle would lie--between the companies, the banks, the venture capitalists. That is where all the tension rose."
Others explain the phenomenon in more basic terms, as a function of human nature. Few professions are as competitive as the financial world, they note, so the blind rush toward going public was just a matter of survival.
"You are judged against your peers," Andrea Williams Rice of Deutsche Banc Alex Brown said with a heavy sigh. "If your peers have coverage of a promising sector or company that is generating enormous profits for them and you don't, you are putting yourself at a disadvantage."
