IPO Lessons From Pandora

NEW YORK (TheStreet) -- Internet radio hot spot Pandora Media is going public.

The Oakland, Calif.-based company filed an S-1 registration Friday with the Securities and Exchange Commission letting regulators and investors know it is looking to do an initial common stock offering to raise around $100 million. Pandora's revenue from advertising sales and partnership subscriptions is solid, but the company has posted a net loss for the past three years, according to the filing. (Its fiscal year ends Jan. 31.)

That may work out for Pandora, but experts say that for small and emerging firms eyeing the public markets, doing an IPO generally requires much more than a need for capital.

"Pandora is still losing money," says Rich Brenner, founder of the Brenner Group, a professional services firm providing financial and management services mainly for tech firms in Silicon Valley. "That is a concern for me."

Firms choosing to go public should "have a history of revenue and profit," Brenner says. "The cost of being a public company, the exposure on the public company and the pressure is so great that a company that hasn't made it on its own -- thinking they can [be a successful public company] is a big question mark if they're not ready."

That being said, experts say that Pandora's IPO will likely do well. It's in a hot sector, and the buzz is significant

"Investors will recognize the name and likely make a decision based on emotion rather than financial facts," Brenner says. "But is the company really ready to go public, when they're losing the amount of money they are? Is it the right time, or should they be raising a mezzanine round first?"

Brenner is concerned that more not-yet-profitable companies that have tasted a bit of success will follow the example and want to go public.

Small businesses should be able to meet certain thresholds before even considering going public, experts say.

"You don't want to be doing an IPO with a market cap below $100 million. The operating costs are just too high," says Joe Duran, CEO of United Capital Financial Partners, a wealth management firm in Newport Beach, Calif. He led the 2001 sale of Centurion Capital Management to GE Financial, a division of General Electric (GE). It later became GE Private Asset Management.

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