Holy Smokes, Vonage goes for an IPO

Multiple sources including The Daily Deal and The Wall Street Journal are reporting that Vonage is about to file for an initial public offering and is hoping to raise between $400 and $600 million. The Daily Deal has the scoop.

According to sources, it’s possible that Vonage might pursue a dual-track process, allowing it to explore a potential merger as well as an IPO. If Vonage goes the IPO route, it would likely use the money the same way it used the proceeds from its previous rounds of funding: to expand its network in the U.S., Canada and overseas.

Dual track process? Now that’s interesting! I get a feeling, that it might be a one-track process – IPO because of the greater fool theory – because not many buyers out there who can pay enough money to give investors (read VCs) a decent return on investment.

Lots of questions in my mind, which will hopefully clear up soon. Just doing the numbers – Vonage has raised $400 million, and with $600 million in IPO proceeds, that’s a whopping $1 billion. Not bad for a company that has shade less than a million customers. So investors in the company are tentatively valuing each Vonage customer at about $1000 – or about 40 months of revenues.

I find the timing of this news pretty interesting! There is clearly lots of competition, including cable companies which are just cranking their sales machine and pushing VoIP like crazy. Skype, Yahoo, Microsoft and Google’s Voice-over-IM offerings are going to put some if not a lot of deflationary pressure on the prices. Price pressure is going to be rampant. Good time, to re-read my Telecom Death Spiral essay. And that’s not even taking into account some of the problems incumbents can create for all indy-VoIP people (without risking the ire of FCC, of course!)

In other words, for Vonage, if not now, then never is the only option. The deal is going to be led by Deutsche Bank Securities, Citigroup Global Securities and UBS. Interesting to note – both Morgan Stanley and Goldman Sachs are missing from the party. Why? Morgan is the banker for Skype, while Goldman is a banker for Google. Never mind that the Bells are not going to take this too kindly, and future banking relationships could be strained.

PS: Personally, their S-1 filing is going to be great reading.

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