• Secret meetings

It’s late in the summer of 1999, six months after AOL acquired Netscape. Andreessen, Horowitz, and fellow Netscape alums Timothy Howes and In Sik Rhee are itching to leave their employer and strike out on their own. The market is booming. The Nasdaq is still six months away from topping out above 5,000 points, and a stunning 253 Net companies will go public in the year.
Valuations of dot-coms such as Yahoo! are poised to surpass established competitors like Walt Disney.

Still employed by AOL, the quartet begins exploring e-business ideas. To keep the AOL brass from finding out, they all sign up for non-AOL e-mail. Ducking out for clandestine meals at places near their offices, they knock around business ideas, but none catch fire. Knowing that whatever their idea will be they’ll need a Web site, Rhee and Howes set out to build the software that will assure their site can handle any volume of visitors without crashing.

Within days, the idea hits them: Building a fail-safe foundation isn’t a problem they have to overcome on their way to creating their business. It is their business. They run fail-safe computing systems for others. By late September, they all quit AOL and are sketching out a business plan under the towering Redwood trees in the yard of Andreessen’s home. They are back in the startup business.

• A confident chief

It’s a year later. Loudcloud is up and running, and it confidently files its paperwork to go public. One blazing hot afternoon, Andreessen hops into his silver, convertible Mercedes for the four-block jaunt from his office to a restaurant for a late breakfast. This IPO plan is iffy, considering that the company has racked up less than $2 million in sales. Internet stocks are under fire to show profits–money-losers like Amazon.com and Priceline.com are off 52-week highs by 79% and 95%, respectively.

Why even go public when the market has gone sour? It’s a no-brainer, says Andreessen. Loudcloud is in a capital-intensive business and will need the money to stay on its ambitious growth trajectory. Equally important, Loudcloud wants the credibility of being a public company to help it win corporate contracts.

What really worries him is not a down market but the possibility that Loudcloud’s IPO will be too much of a good thing. His fear is that its stock will rocket and that it will be difficult to meet expectations.

• Reality bytes

Loudcloud wants to push its IPO out quickly. If the company can start the road show immediately after Thanksgiving, it could go out by mid-December.

The optimism is fleeting. On November 13, the Loudcloud gang troops into the posh, dimly lit conference room of Benchmark Capital, its top venture-capital backer that has put $20 million into the startup. About a half-dozen of the partners, including Loudcloud director Rachleff, David Beirne, and Kevin Harvey, drift in to hear the pitch. Andreessen, Horowitz, and Loudcloud CFO Roderick Sherwood speed through a dry-run presentation of their company. The goal: to test the seaworthiness of the startup before embarking on the IPO road show. Less than 15 minutes in, one of Horowitz’ PowerPoint slides sets off alarms. It shows that nearly half of the company’s revenues come from running the Web sites of the beleaguered dot-com crowd. "Investors are going to throw up when they see that," pipes up one VC.

Still, they don’t discourage the IPO. Instead, they explore ways to downplay Loudcloud’s vulnerability.

Later in the week, the company’s lead bankers, Morgan Stanley and Goldman Sachs, call to say they’re lukewarm on an IPO before Christmas. With momentum quickly turning against an IPO, Andreessen and Horowitz decide to postpone their run for the money.

• No go, again

It’s January 8, time for another go/no-go decision. Before 9 am, CFO Sherwood and Horowitz are working the phones, powwowing with bankers and advisers for hours. Benchmark Capital and most of Loudcloud’s executive staff are itching to pull the trigger. The bankers are dead-set against going out. Their reason: Loudcloud’s comparables–the stock prices of other similar companies–are down another 40% to 50% since early December.

That afternoon, at the company’s executive-staff meeting, Horowitz and Sherwood break the news. "The bankers’ economists are telling us there’s a 45% chance of a global recession," explains the gravelly voiced Sherwood. Unlike two months ago, this IPO delay will have far greater implications. Despite the crumbling market, Loudcloud has quadrupled its staff in the past nine months, to 586 people. Now, Horowitz is considering postponing a move into some new office space.

• They’ve got cojones

Cash has become a worry. Loudcloud puts out feelers for a third round of venture backing, but offers trickle in at about two-thirds of what the bankers believe they can fetch with an IPO. That would put their valuation roughly in the neighborhood of $375 million. It’s a slap in the face, considering that the second round Loudcloud attracted last summer put the company’s worth north of $700 million. With bankers still confident that Loudcloud could be valued between $550 million and $650 million on the open market; a third push for an IPO begins in early February.

The biggest question: How do they price the deal? Most public competitors are down more than 50% since Loudcloud first set its pricing last Halloween. That would put its asking price between $5 and $6 per share. Worried about the psychological impact of having a low, single-digit stock price, the company works a reverse stock split, essentially turning every two shares of stock into a single share. On February 16, Loudcloud files its final IPO paperwork. The reverse stock split has allowed it to price between $8 to $10 a share–a valuation 47% lower than it had hoped for just months earlier.