the design of the Oakland facility. The price tag: a cool $1 billion that the company didn't have. Two weeks hadn't passed before Webvan raised more admiring eyebrows, and more cash. The company sold a 6.48 percent stake for a whopping $275 million to Softbank, Sequoia and Goldman Sachs.
Back in the early days of the Web, spectacular IPOs like Netscape's and Yahoo's became marketing events. Overnight, obscure startups turned into household names. With everyone in the Internet Economy hoping to pinpoint the next blockbuster success, the marketing opportunities are coming much earlier than the IPO. As such, financing on the scale, and pedigree, of Webvan's is more powerful than just about any ad campaign.
"Those are pretty smart people who have put together those numbers, and we would be stunned if they hadn't properly run the numbers," says Terry Drayton, president and cofounder of Seattle-based HomeGrocer, echoing a sentiment that drives much of the bull-market psychology.
Two weeks after signing the huge private investment round, Webvan filed for a $345 million public offering - one of the largest this year - led by Goldman Sachs. Other underwriters include Donaldson Lufkin & Jenrette, Merrill Lynch (MER), Robertson Stephens, Bear Stearns, Deutsche Banc Alex. Brown and Thomas Weisel Partners.
No one is saying Webvan is merely hype. The company has amassed a top-notch management team, capped by its recruitment last month of George Shaheen, former chief executive and managing partner of Andersen Consulting (ACN). Its board includes CEOs Tim Koogle of Yahoo and Christos Cotsakos of E-Trade, as well as venture capitalists Mike Moritz of Sequoia and David Beirne of Benchmark. In three months its customer base doubled to about 20,000. Like many Internet companies, Webvan's most abundant asset is its potential. And even Webvan's competitors call the opportunity "huge."
Still, success is by no means guaranteed. Although Webvan has racked up plenty of happy customers in the wired and affluent San Francisco area, it is unclear whether online grocery shopping will ever gain mass appeal. So far, sales have been miniscule: less than $400,000 for the six months ended June 30. What's more, the logistics of timely local deliveries are far from trivial. Currently, orders need to be placed several days ahead of time.
Webvan's older competitors, including Peapod (PPOD) and NetGrocer, have struggled and have been forced to reassess their business models. Streamline, which operates in the Boston area, hasn't fared much better, and its stock has languished since its June 18 IPO. Still, these competitors and still-private HomeGrocer are sure to give Webvan a run for its money. HomeGrocer has racked up its own roster of blue-chip investors, from Kleiner Perkins Caufield & Byers (dossier) and Amazon to the Barksdale Group, and has opened for business in Seattle, Portland, Ore., and Orange County, Calif.
On Oct. 6, Webvan unexpectedly postponed its IPO, following a report by TheStreet.com that suggested its road show may have flaunted government rules. Webvan refuses to comment on the disclosure issue, citing SEC regulations that bar companies from self-promotion at the time of their IPO. But the company issued a statement on: "In view of the significant amount of publicity with respect to Webvan's proposed public offering, the SEC and Webvan have agreed to a cooling-off period prior to the commencement of the offering."
Investors in Silicon Valley and throughout the United States are eagerly awaiting Webvan's IPO, and many are betting it will be a blockbuster. Yet some say privately that Webvan's aura of success is valid not only because its blue-chip backers can't be wrong; it's also because so many people have made so much money in the Internet Economy that no one wants to be the one to crash the party. Or worse yet, no one wants to leave early to later find that the party goes on without them.
Webvan's Path to IPO: A Timeline
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