Entrepreneurship: IPO s and Exit Strategies

Paypal , Inc 's Initial Public Offering

Introduction

Founded in 1999 , Paypal Inc , enables people with email to send and receive cash money over the Internet . Formerly known as X .com Corporation , Paypal has been popular with merchants and buyers who do business Online , including those in popular auction site eBay . As an alternative to wire transfer through commercial banks , Paypal allows anybody to wire and receive funds by setting up accounts with the company 's Web site . Registered users of http /www .paypal .com / are able to link their credit cards

or bank accounts , and debit to (or credit from ) those accounts in case they receive (or transfer ) funds through Paypal . Paypal targeted online merchants , individuals , small businesses and others entities under served by traditional mechanisms (Thiel

Paypal has achieved rapid growth since its founding in March 1999 According to its prospectus d with the Securities and Exchange Commission , as of Paypal had 10 ,000 ,000 registered users in 36 countries , as of the third quarter of 2001 . Despite its rapid growth Paypal saw significant opportunity to expand . Among other things , it noted , citing the U .S . Census Bureau , that , small businesses generated a merchants in the U .S . were able to accept credit card payments . In September 2001 , Paypal announced an initial public offering of new shares of stock

Summary of Events and Circumstances

If you had been in charge , how would you have handled PayPals IPO process differently ? To answer that question , I will study the documents submitted by the company to the Securities and Exchange Commission , and the news reports on the outcome of the sale of stock

Goal of the Public Offering of Stock

According to the company 's prospectus , the company intends to use the proceeds of the IPO as

follows

-- 10 million to 15 ,000 ,000 to support collateral requirements in light of increasing

transactions with outside merchants

-- 10 million to 15 million for capital expenditures and

-- the remaining amount for international expansion and additional products development

In February 2002 , Paypal launched a public offering of 6 ,210 ,000 shares of its common stock at 13 a share . Paypal netted proceeds of 70 ,600 ,000 , net of underwriting discounts

Salomon Smith Barney , Bear , Stearns Co . Inc , Merrill Lynch Co William Blair Company , SunTrust Robinson Humphrey , SoundView Technology Group , and D .A . Davidson Co . were engaged as underfor the transaction

Company 's Financial Condition

According to its annual report submitted to the Securities and Exchange Commission , Paypal had 104 ,831 ,000 in revenues and expenses of 216 ,215 ,000 as of the year ended December 31 , 2001 compared to 14 ,460 ,000 in revenues and 187 ,524 ,000 in expenses the year before . Paypal incurred operating losses during those two years -- 173 ,064 ,000 in 2000 , and 111 ,384 ,000 in 2001 . Paypal had 278 ,577 ,000 in assets and 198 ,665 ,000 in debts as of the year ended December 2001

Legal Proceedings

At the peak of its preparations...