Vonage Playing to Its Fans for IPO

Vonage's planned stock offering is shaping up to be the most notable IPO of the year -- certainly the one most worth watching, even if you're not investing in it.

Back in February, when Vonage filed its first preliminary prospectus, I argued it would be a good acid test for technology IPOs -- especially the return of tech IPOs that were as big on promise as they were short on profit.

Vonage was just that: a leader in the voice-over-Internet protocol (VoIP) market that had signed up more than a million subscribers, but that went to town on marketing costs to get there.

Since then, things have taken an interesting twist.

It seems that institutional investors weren't necessarily stampeding to invest. Of the $20 trillion or so held by pensions, mutual funds and trusts, these institutional investors wouldn't even pony up the $494 million that Vonage is seeking.

So Vonage used a time-honored tradition of companies whose IPOs are in peril: It turned to the retail investor.

Vonage updated its prospectus this month to say it expects a "substantial portion" of shares in the offering to be sold to retail investors.

It set up a site for the 1.2 million or so customers as of Dec. 15, 2005, to buy between 100 and 5,000 shares in the IPO. Investors have until the end of the day Friday to request their allotments on a Web site that underwriters have set up for the directed shares.

So now the offering is becoming an even more fascinating acid test. We now know that institutional investors are for the most part passing on the Vonage offering. But will the individual investors take the bait?

The buzz is that they will. A post on the Web site of IPO research shop Morningnotes, apparently authored by one of its analysts, reads: "It was told to me earlier that the IOIs [indications of interest] placed for these shares is now sufficient to cover the entire deal. Suffice it to say, this deal is done."

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