Interrupted Public Offerings.

Less than 2 months ago so many of us were jokingly asking, "When is this IPO frenzy going to fade?" Investors were searching online brokers in an attempt to get a few hundred shares of any IPO. With so many IPOs surging in the days following the offerings, the perceptions were that IPO investments were "can't miss" propositions. Everyone seemed to have a friend, relative, child, spouse or someone they knew who was making a fortune in IPOs. In actuality, one out of every three IPOs in 1999 was trading below the IPO price at the end of the year.

Well, search the financial market web sites today and see the prevailing attitudes about the IPO market. In short, many are proclaiming, "It's over!" The tall y for April alone: 11 withdrawn offerings (33 for the year) and 16 postponements (23 for the year). More to come in May. The NASDAQ index is off 25% since reaching its record high of 5,048 in March, with Internet and technology stocks sustaining the largest market declines. Where are we now? How long wilt this anti-IPO market last? What trends are likely to emerge as a result?

According to some observers, the job market is beginning to lose its frenzy. Fewer job seekers are willing to accept compensation packages that are heavily loaded with stock options and light on salary--bad news for cash-starved start-ups that have to use equity as a cash replacement How about the vendors, landlords, recruiters and service providers who were bartering goods, space and services for equity? I heard stories that some vendors were demanding payment in stock or options. Once again, cash is king.

Much concern was expressed over the expiration of "lock up" periods that kept founder and pre-IPO investor shares off the market for 6 months after an IPO. Several studies, one reported by The Industry Standard, found that the approach of the end of the "lock ups" did not have the market-depressing effects anticipated. Now, they will be non-events with so many stocks trading below their IPO prices.

M&A activity is likely to increase as cash-starved companies like Drkoop.com and CDNow.com look for suitors to bail them out. A number of Internet companies will fail due to lack of funding alternatives. Just the other day! spoke with the CEO of a NASDAQ company who is planning strategies to be an active acquirer of failed Internet ventures. The to-be-acquired ranks are likely to contain late-to-the-party pre-IPO companies whose founders and lead investors are looking for an acquirer's publicly traded currency as an IPO replacement.

A prolonged IPO drought can be expected to have a chilling effect on venture capital, angel and incubator funding activities, while these investors adjust to extended holding periods and fewer liquidity options. Companies with poorly conceived business models will have little or no chance of getting funded, because investors will become more selective. This probably means that fewer B-to-C Internet ventures will get funded because of the enormous investments they require to drive traffic to their sites and the poor performance of most online retailers.

All in all, this Interrupted Public Offering period is beginning to look pretty normal. See you at the start of the next cycle--free DSL and wireless everything IPOs.

Jack Goldman is an attorney with Arter & Hadden LLP, and co-founder of QENM.com, an early-stage, "pre-IPO" healthcare information technology company.