This just in: Preview Systems Inc, the digital rights management software vendor, is to close its doors following the sale of its technology assets to Aladdin Knowledge Systems Inc for $5m, the company said yesterday. Preview has been struggling for some time, and announced in February it was exploring strategic alternatives. It said that selling its intellectual property and winding up the business is the best deal it can offer its shareholders. So why do you care? Well, this is a microcosm of the investment market today, post-meltdown. There are some enigmatic lessons here, and who better to write something weird about them. I know Preview because it was one of the companies I almost went to work for. They had a couple of real products, and there were some sales in an interesting area. During my interview cycle, I began to wonder why they thought they were in business. No sustainable sales model... although they had sold less than $1M total and I could see only $3M annual revenues on the horizon, the CEO and the board were shooting for a billion dollar valuation. As intelligent as they seemed to be as individuals, collectively they had to be seriously deranged or on drugs. As is often the case, they didn't need a marketing guy: they needed a 12-step program. But Preview was able to persuade Wall Street that they had real intellectual property and real sales. They went public and flew to $80 a share, momentarily achieving a $1.3 B valuation. Guess how I smart I felt when they did that. Unfortunately for investors, Preview's revenue hopes never really materialized: at the peak, their sales rate was less than $5M a year. They were also spending more than $30 M a year to achieve that "growth." The same Wall Streeters that toyed with the stock in the early days pushed it down below $15 a share before anybody who worked for the company could sell. Preview continued writing lovely press releases about the deals they'd closed and the powerful trends they'd initiatived, but it just didn't show up in the numbers. As of last week, they were below $3 a share...but even that valued the company at $53 M, over **ten times** what they ended up selling their entire intellectual property for. Who are the knuckleheads buying PRVW for ten times the cash value of the company, after all this bloodshed? The big Wall Street money had left in the first 3 weeks of trading, so riding the stock all the way down was the individual investor who'd been sold a story. In a way, this is good news: your 401(k) funds weren't at risk. But it's really scary news for anyone who tries to make their own decisions. IPOs are a staged event to get financing for companies with promise. The VCs and the firms make everything look as good as they possibly can to pump the revenues for 2 or 3 quarters, making them look better than they can sustainably be. IPOs are also specifically designed so that the first purchasers of the stock can turn around and sell it at a tidy profit within a few days' time. The numbers work out so that the only individuals who can ever really make money are the company's executive staff and the VCs. Sometimes, even these folks can't sell soon enough. In the first few days, the only people who can sell are the underwriting firms, the Wall Street hourses that trade amongst themselves, bouncing the shares back and forth until enthusiasm starts to sag. By the time you or I can can buy the IPO stock, we're buying it from Wall Streeters trying to unload their shares. This can translate into 250% increases in the first few days for those who are in and can sell, but it guarantees 75% losses for the individuals left holding the bag. In the best of times and strongest of companies, lots of people make out. But in this market, and the tech firms that went public in the last few years, it's probably a 90% chance that their stock has been trading substantially below the IPO price. Sadly, for companies like Preview, even a 95% slash to their price was unrealistically high. Dave