Notable IPO Failures and What Went Wrong

The Dot-Com Bubble: A Showcase of Speculative Mania

The late 1990s and early 2000s produced the most iconic and instructive IPO failures in modern financial history. The prevailing investment philosophy shifted from valuing profitability and sustainable business models to prioritizing user growth and “first-mover advantage,” regardless of cost. This environment fostered a crop of companies that were fundamentally unsound yet achieved staggering public valuations.

• Pets.com (2000): The poster child for dot-com failure, Pets.com became infamous for its sock puppet mascot and its spectacular collapse just 268 days after its IPO. The company raised $82.5 million in February 2000, pricing shares at $11, only to see them become worthless by November. The core business model was fatally flawed. They sold heavy bags of pet food and kitty litter, incurring enormous shipping costs. Deep discounts were used to attract customers, meaning they lost money on nearly every sale. The economics of low-margin goods combined with high fulfillment costs created an unscalable venture. Despite massive marketing expenditures that built brand recognition, they could not build a path to profitability, proving that brand awareness alone cannot sustain a company.

• Webvan (1999): A visionary but premature concept, Webvan aimed to revolutionize grocery delivery. It raised $375 million in its IPO, reaching a peak market cap of nearly $12 billion. The company’s failure was rooted in catastrophic operational overreach. Before proving its concept in a single market, Webvan committed to building a $1 billion infrastructure of automated warehouse facilities across 26 cities. The capital expenditure was immense, and the customer density required to make each delivery route profitable was never achieved. They burned through cash at an unsustainable rate, attempting to scale a logistically complex operation far too quickly. Webvan’s collapse was a direct result of prioritizing grandiose ambition over unit economics and phased, sustainable growth.

• eToys.com (1999): In the competitive online toy market, eToys.com had a successful IPO, with its stock soaring on its first day of trading. However, it filed for bankruptcy just 16 months later. The company spent exorbitantly on marketing to compete with Toys “R” Us and emerging giant Amazon. Its operational infrastructure was overwhelmed during the 1999 holiday season, leading to widespread delivery failures and angry customers. The following year, they scaled back marketing to conserve cash, but it was too late; they had already lost consumer trust and market share. A failed merger with Toys “R” Us sealed its fate, highlighting the dangers of poor operational execution and the perils of competing on marketing spend alone against well-capitalized rivals.

The Unicorn Era: Overvaluation and Flawed Fundamentals

The 2010s saw the rise of “unicorns”—private startups valued at over $1 billion. Many of these companies, buoyed by years of easy venture capital, faced a harsh reality check upon entering the public markets, where scrutiny was higher and patience for losses was lower.

• WeWork (2019): WeWork’s attempted IPO was not a failure in the traditional sense because it was withdrawn before completion. However, its implosion is a masterclass in governance and valuation failure. The company presented itself as a tech-driven “space-as-a-service” platform to justify a valuation that peaked at $47 billion. In reality, it was a commercial real estate company with massive long-term lease liabilities and short-term rental income, a model vulnerable to economic downturns. The IPO prospectus revealed staggering losses, a complex governance structure that favored founder Adam Neumann, and concerning related-party transactions. Investor pushback was swift and severe, forcing the company to withdraw the IPO, oust Neumann, and accept a bailout. WeWork’s failure underscored the critical difference between a disruptive tech company and a traditionally leveraged business with a tech facade.

• Uber (2019): While Uber is a functioning public company, its IPO is widely considered a failure relative to expectations. It was one of the most anticipated public offerings ever but debuted with a whimper. Priced at $45 per share, it closed its first day of trading down 7.6%. The problem was a combination of overhyped valuation and persistent, deep losses. Unlike earlier tech IPOs, the market had grown skeptical of the “growth at all costs” mantra. Uber’s prospectus showed it was losing billions annually with no clear timeline to profitability. Furthermore, the ride-sharing model faced existential questions about driver classification, regulatory battles worldwide, and intense competition. The IPO forced a sober reassessment of whether its business model could ever achieve the margins necessary to justify its pre-IPO valuation.

• Snap Inc. (2017): Snap’s IPO was successful in raising capital, but its post-IPO performance reveals significant miscalculations. Priced at $17, the stock initially popped but then began a long decline, struggling for years to trade above its IPO price. The core issue was a fundamental threat to its business model from Meta’s Facebook and Instagram. Instagram’s successful cloning of Snapchat’s flagship “Stories” feature directly eroded its user growth and competitive advantage. Snap’s decision to prioritize user experience over monetization and its reluctance to embrace an open, data-driven ad platform like Facebook’s initially limited its revenue potential. While it has since recovered, its early post-IPO struggles highlight the immense risk of competing with tech titans who can quickly replicate and distribute innovative features to a larger user base.

Specific Execution and Market Timing Failures

Some IPOs fail not due to a flawed core business, but because of poor timing, over-ambitious pricing, or specific strategic errors during the offering process.

• Facebook (2012): Facebook’s IPO is a prime example of how a successful company can have a disastrous public debut. Priced at $38 per share, the stock immediately faced technical glitches on the NASDAQ exchange, creating chaos and uncertainty. More critically, just before the IPO, the company revised its revenue projections downward, citing a rapid shift of users to mobile platforms for which it had not fully developed its advertising product. This spooked investors. The combination of the overhyped valuation, the technical issues, and the revised outlook led to a precipitous stock drop, losing over 50% of its value in the following months. It took over a year for the stock to recover to its IPO price, demonstrating that even a dominant social media giant is not immune to IPO missteps rooted in poor communication and market timing.

• Beyond Meat (2019): As the first major plant-based meat alternative company to go public, Beyond Meat experienced a spectacular initial pop, rising over 700% from its IPO price within a few months. However, this success sowed the seeds of its subsequent failure to maintain value. The stock became wildly overvalued, trading at multiples that could not be justified by its sales or market size. The euphoria masked underlying challenges: intense competition from Impossible Foods and traditional food giants, a product that some consumers deemed inferior to animal meat, and questions about the long-term health trends. When growth inevitably slowed and lock-up periods expired allowing insiders to sell, the stock cratered. Its IPO was a victim of its own initial success, creating a bubble of expectations that the underlying business could not sustain.

• Renaissance Capital IPO ETF (IPO): As a broader indicator, the performance of this ETF, which tracks a basket of recently public companies, has often underperformed the broader market, particularly following periods of IPO frenzy. This trend suggests that the hype and valuation inflation common during the IPO process frequently lead to long-term underperformance for the average new public company, as early investors cash out at peak valuations, leaving public market investors holding the bag.

Common Threads in IPO Failures

Analyzing these disparate cases reveals a consistent set of failure factors.

1. Flawed Business Model: The most fundamental reason. Companies like Pets.com and Webvan had models that lost money with each additional sale. Profitability was a theoretical goal, not an achievable reality.
2. Misaligned Valuation: Pre-IPO valuations, often set by private investors, can become detached from financial reality. WeWork and Uber were valued as tech disruptors while possessing the financial profiles and risks of traditional asset-heavy businesses.
3. Poor Corporate Governance: The WeWork saga highlighted how dual-class shares, conflicted founders, and a lack of board oversight can create immense risk, destroying investor confidence overnight.
4. Terrible Timing: Going public during a market peak or just before a downturn (e.g., the dot-com bubble burst) or during a period of internal uncertainty (e.g., Facebook’s mobile transition) can doom an IPO regardless of the company’s long-term potential.
5. Intense and Unmanageable Competition: Companies like eToys and Snap were ultimately vulnerable to larger, better-funded competitors who could outspend them or directly copy their innovations, eroding their market position post-IPO.
6. Operational Ineptitude: The inability to fulfill orders (eToys) or the reckless expansion of complex infrastructure (Webvan) demonstrates that a great idea is worthless without the operational excellence to execute it reliably and cost-effectively.