The Demise Of The Hot IPO: FireEye And Rocket Fuel Collapse

May 8 2014, 6:02pm CDT | by

Less than eight months ago, two tech companies that were losing money listed their shares on Nasdaq on the same day and saw their shares explode higher. FireEye and Rocket Fuel ushered in the return of the hot IPO, reminding some of the first Internet bubble.

This week history repeated itself as shares of FireEye and Rocket Fuel collapsed. Like in the first Internet bubble, shares of the companies plunged weeks after pre-IPO venture capital investors, founders and executives cashed-in.

Earlier this week FireEye, a seller of cybersecurity software, reported first-quarter financial results that were not enough to meet the very high expectations that had been built into the stock. Shares of FireEye fell by 22% on Wednesday.

FireEye CEO David DeWalt hopped on CNBC to apologize and confront questions over having personally sold $39 million of stock in March at a price of $79.54 per share. In that secondary offering, FireEye founder Ashar Aziz sold $83 million of stock and venture capital firm Northwest Venture Partners, a pre-IPO investor in the company, sold $160 million of FireEye shares. The stock slipped another 4% on Thursday to $27.45. The stock soared by 80% on IPO day and closed at $36.

Rocket Fuel, an advertising technology company, released its most recent financial results after the markets closed on Thursday and the outcome looks to be equally ugly. Shares of the company are getting hammered in after hours trading, plummeting by 25% to $20.69. Rocket Fuel raised some $116 million in its IPO by selling stock at $29 a share. It stock increased by 93% in its first day of trading, closing at $56.10.

Rocket Fuel conducted a secondary offering earlier this year by selling stock for $61 per share. Pre-IPO venture capital investors and other insiders received $175 million. About $100 million of that windfall went to venture capital firm Mohr Davidow Ventures. Rocket Fuel CEO George John also sold some $18 million of stock.


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