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Tremor's IPO Is Off to a Bumpy Start, but It's Still Necessary

Company's stock priced below expectations

For its first day on the NYSE, digital video ad network Tremor Video priced its stock at $10—below the $11-13 range predicted by industry analysts—and then the market promptly dropped it 2.5 percent to $9.75. It's been a morning of speculation about the company's future and the trouble with tech IPOs in general, namely that they're too insular and nobody knows the intricacies of how their balance sheets work, even if they have name recognition—which most don't.

For Tremor specifically, though, there's both a carrot and a stick when it comes to opening yourself up to public investment. First, the world of online, mobile and tablet video advertising is not nearly as large as old-fashioned linear television, but it's growing rapidly while TV is struggling to show year-over-year improvement during its biggest selling season (the upfront). Video ads are projected to grow 41.4 percent to about $4.09 billion, according to Clark Fredricksen of eMarketer; mobile ad spending is projected to more than double from $244 million to $518 million. Television will reach $66.54 billion this year, but it will grow by less than 3 percent—clearly, the smaller industry presents the opportunity for better returns.

But the fact remains that many tech companies are still in the midst of a protracted adolescence, stringing along between funding rounds as they struggle to make their products profitable—e-tailing giant Amazon.com ended last year in the red, and even hot stocks like Netflix belie huge debts. Part of this is the nature of the business—new notions require a lot of capital to get off the ground, even good ones—but many companies have made skeptics out of analysts formerly bullish on the tech sector.

For example, analysts at Bank of America Merrill Lynch observed at the beginning of this year that every tech industry except IT was trading at historical lows. Indeed, investors in Tremor are currently buying a share in some $68 million worth of debt, at least according the company's balance sheet at the end of March. Tremor has taken on over $121 million in VC funding to date.

"Venture capital partners need returns," said one person with knowledge of the Tremor deal, bluntly. It's also true that interest from the public sector can fuel acquisitions, the source observed—if Tremor can demonstrate that it's generating enough cash, it can attract the attention of other groups that find the company's accomplishments (and infrastructure) attractive enough to take into a larger corporate fold.

Reporting to Wall Street every quarter may be unpleasant, but it proves that a company is willing to put its money where its mouth is. Or perhaps your money.

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