Top Five Deals in October - Neoforma.com $70.5 million
. . . One of those business-to-business ventures only its customers ever hear about, Neoforma.com is an online marketplace for medical supplies. What’s a real business doing on this list? . . .
Fortune Magazine, December 1999
Tenet, Columbia start Internet ventures
. . . Eager not to miss the dotcom train, Columbia/HCA Healthcare Corp. and Tenet Healthcare Corp., the nation’s two largest for-profit hospital companies, separately launched e-commerce procurement companies last week . . .
Modern Healthcare, December 20-27, 1999
Reality was increasingly out of sync.
In spite of many setbacks in getting the IPO documents filed, our advisors still felt that there was a chance we could host our public offering sometime in early December.
In spite of many setbacks in getting the IPO documents filed, our advisors still felt that there was a chance we could host our public offering sometime in early December.
However, the stock market was cooling down after its year-long adrenaline rush. The bankers believed that creating demand for our stock in a cooling market would be risky. The IPO was postponed until January.
This was hard on the morale of a company nearly paralyzed by the suspense of a pending IPO. There were many restrictions on our business due to the “quiet period”—the period after filing for IPO, during which the company must be very cautious about everything it says.
A company is strictly watched during the period between the filing and the IPO to ensure that it does not behave in any way that appears as if it is trying to influence individual investors. No big deals can be discussed without immediate public disclosure. No information can be shared with anyone outside the company, unless it is shared with absolutely everybody outside the company. No advertising can be done that might appear as if the company, rather than a particular product, is being promoted.
We were so used to the buzz that this silence was suffocating. So, we each tried to make the best of the extra time.
One of the most bizarre issues I had to deal with was preparing to be rich.
Upon filing the IPO, hundreds of investment managers from big investment companies began calling me. I was easy prey because I had made it my policy not to have my calls screened. These cocky guys— and they were all men — almost always made a point to say, “I don’t usually call potential clients directly, but you are so special . . . I wanted to call you personally.” Of course, a month ago they would not have acknowledged my presence at a party.
They each gave me their pitch about how they could help wealthy individuals like me quickly diversify my assets—meaning, sell my stock. They talked about all sorts of schemes that would let me sell my stock without really selling it. These schemes would also allow me to use my company stock as collateral for short-term cash.
This perplexed me, because I knew that I had signed an agreement with the company that I would not sell or leverage my stock for at least six months after the IPO. This is called the lockout period. “Well . . . ahem . . . if you feel that these plans wouldn’t honor your agreement with the company, you could wait until after the six months, but there are ways to do it before. They just involve a little risk. We’ll be happy to lend you money to invest or buy a house . . . without officially using the stock as collateral . . . just because we want your business. It will be easy for you to pay it back when your lockout ends.”
While I had every confidence in Neoforma, borrowing money against something I couldn’t control didn’t seem right, nor did the schemes that would have enabled me to disguise the fact that I was leveraging stock. I had had my fill of risk for the time being. And I knew that Anni was even more conservative on this issue than I.
The managers also espoused their clever tax avoidance schemes. “After all, half of everything you make will go to Uncle Sam, if you don’t manage your tax strategies properly.”
I understood very little of their spiels, but one thing that I knew was that the IRS looked very carefully at people whose income changed drastically. And I knew that our accountant had been less than competent in handling our taxes to date. I had found some ridiculous errors he had made in the past. And if I could find an accountant’s errors, they had to be blatant ones.
One reason we had been able to fund Neoforma in the early days was that we could benefit from the deductions associated with a high-risk investment. I figured that this made sense. It encouraged people like me to take risk. Our accountant wrote off all of the loans. That had been a great relief.
I asked an associate who had been through the IPO process for recommendations on an accounting firm. He gave me the name of
a small accounting firm that specialized in high-net-worth clients. (Apparently, it is not proper to use the word rich.)
I felt strange setting up an appointment with such a firm, but I figured that this was the right thing to do. Before long, Anni and I met with Mike, the accountant, and Paul, his right-hand man. They were kind. They were respectful of the fact that we were broke and yet were asking them how to manage the millions of dollars we might have soon. They had seen others like us many times.
Paul would be our primary contact at the firm. He was a young guy and very passionate about his business. He almost made accounting seem interesting. He clearly knew what he was doing and he was so patient that I almost understood a few of the tax-management issues he discussed. “Of course, the first thing we need to do is have a look at all of your tax filings since you started Neoforma . . . just to make sure that everything is okay.”
A couple of weeks later, he called us to review his findings. He explained about something called the at-risk rule and said that our earlier filings had been inaccurate. “We will need to restate your last three-years’ tax filings.” It wasn’t all bad though, since in one of the years, we actually hadn’t gotten enough money back from the government. The other two years weren’t quite as good.
“You owe about thirty thousand dollars,” he said. “And you really need to pay it quickly. The penalties are already costing you a bundle.” To help out, he offered to defer his accounting fees.
Now, this was ironic. Here we were, thinking we were being conscientious in finding out how to manage our ensuing fortune, and instead, we owed thirty thousand dollars we couldn’t afford.
Even in the time before Neoforma, Anni and I had fallen victim to that number-one cause of marital strife--money. We had run very lean each time Anni had switched to part-time work to take care of our infant sons. We had been able to catch up each time, but never get much ahead. Since that first check went to Neoforma in 1996, our money shortage had been constant. We had managed our credit, but we had been unable to save or splurge. This, combined with my general mental absence, had stressed us to the point that any new financial issue sent us immediately into despair.
Rationally, we knew that—however well the IPO went—we would soon be very wealthy--on paper. And, in seven months or so, after the lockout period, we would be able to get out of debt for good. But right now, during another depressing holiday season, we were once again going to have to put every penny we had into Neoforma.
When Neoforma had paid us back the previous June for our loans to the company, we had been able to pay off the father-in-law loans. We were still about a hundred thousand dollars in debt, but we had been able to build up a small emergency cash reserve. Now that would be gone.
The old panic set in again. I stopped answering my work phone. I wasn’t interested in how brokers could help me manage all of my money. The money I didn’t have now was more pressing than the money I might have later.
This was hard on the morale of a company nearly paralyzed by the suspense of a pending IPO. There were many restrictions on our business due to the “quiet period”—the period after filing for IPO, during which the company must be very cautious about everything it says.
A company is strictly watched during the period between the filing and the IPO to ensure that it does not behave in any way that appears as if it is trying to influence individual investors. No big deals can be discussed without immediate public disclosure. No information can be shared with anyone outside the company, unless it is shared with absolutely everybody outside the company. No advertising can be done that might appear as if the company, rather than a particular product, is being promoted.
We were so used to the buzz that this silence was suffocating. So, we each tried to make the best of the extra time.
One of the most bizarre issues I had to deal with was preparing to be rich.
Upon filing the IPO, hundreds of investment managers from big investment companies began calling me. I was easy prey because I had made it my policy not to have my calls screened. These cocky guys— and they were all men — almost always made a point to say, “I don’t usually call potential clients directly, but you are so special . . . I wanted to call you personally.” Of course, a month ago they would not have acknowledged my presence at a party.
They each gave me their pitch about how they could help wealthy individuals like me quickly diversify my assets—meaning, sell my stock. They talked about all sorts of schemes that would let me sell my stock without really selling it. These schemes would also allow me to use my company stock as collateral for short-term cash.
This perplexed me, because I knew that I had signed an agreement with the company that I would not sell or leverage my stock for at least six months after the IPO. This is called the lockout period. “Well . . . ahem . . . if you feel that these plans wouldn’t honor your agreement with the company, you could wait until after the six months, but there are ways to do it before. They just involve a little risk. We’ll be happy to lend you money to invest or buy a house . . . without officially using the stock as collateral . . . just because we want your business. It will be easy for you to pay it back when your lockout ends.”
While I had every confidence in Neoforma, borrowing money against something I couldn’t control didn’t seem right, nor did the schemes that would have enabled me to disguise the fact that I was leveraging stock. I had had my fill of risk for the time being. And I knew that Anni was even more conservative on this issue than I.
The managers also espoused their clever tax avoidance schemes. “After all, half of everything you make will go to Uncle Sam, if you don’t manage your tax strategies properly.”
I understood very little of their spiels, but one thing that I knew was that the IRS looked very carefully at people whose income changed drastically. And I knew that our accountant had been less than competent in handling our taxes to date. I had found some ridiculous errors he had made in the past. And if I could find an accountant’s errors, they had to be blatant ones.
One reason we had been able to fund Neoforma in the early days was that we could benefit from the deductions associated with a high-risk investment. I figured that this made sense. It encouraged people like me to take risk. Our accountant wrote off all of the loans. That had been a great relief.
I asked an associate who had been through the IPO process for recommendations on an accounting firm. He gave me the name of
a small accounting firm that specialized in high-net-worth clients. (Apparently, it is not proper to use the word rich.)
I felt strange setting up an appointment with such a firm, but I figured that this was the right thing to do. Before long, Anni and I met with Mike, the accountant, and Paul, his right-hand man. They were kind. They were respectful of the fact that we were broke and yet were asking them how to manage the millions of dollars we might have soon. They had seen others like us many times.
Paul would be our primary contact at the firm. He was a young guy and very passionate about his business. He almost made accounting seem interesting. He clearly knew what he was doing and he was so patient that I almost understood a few of the tax-management issues he discussed. “Of course, the first thing we need to do is have a look at all of your tax filings since you started Neoforma . . . just to make sure that everything is okay.”
A couple of weeks later, he called us to review his findings. He explained about something called the at-risk rule and said that our earlier filings had been inaccurate. “We will need to restate your last three-years’ tax filings.” It wasn’t all bad though, since in one of the years, we actually hadn’t gotten enough money back from the government. The other two years weren’t quite as good.
“You owe about thirty thousand dollars,” he said. “And you really need to pay it quickly. The penalties are already costing you a bundle.” To help out, he offered to defer his accounting fees.
Now, this was ironic. Here we were, thinking we were being conscientious in finding out how to manage our ensuing fortune, and instead, we owed thirty thousand dollars we couldn’t afford.
Even in the time before Neoforma, Anni and I had fallen victim to that number-one cause of marital strife--money. We had run very lean each time Anni had switched to part-time work to take care of our infant sons. We had been able to catch up each time, but never get much ahead. Since that first check went to Neoforma in 1996, our money shortage had been constant. We had managed our credit, but we had been unable to save or splurge. This, combined with my general mental absence, had stressed us to the point that any new financial issue sent us immediately into despair.
Rationally, we knew that—however well the IPO went—we would soon be very wealthy--on paper. And, in seven months or so, after the lockout period, we would be able to get out of debt for good. But right now, during another depressing holiday season, we were once again going to have to put every penny we had into Neoforma.
When Neoforma had paid us back the previous June for our loans to the company, we had been able to pay off the father-in-law loans. We were still about a hundred thousand dollars in debt, but we had been able to build up a small emergency cash reserve. Now that would be gone.
The old panic set in again. I stopped answering my work phone. I wasn’t interested in how brokers could help me manage all of my money. The money I didn’t have now was more pressing than the money I might have later.
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