Blackboard Insiders Hold Keys to Stock Performance

It was just like the good old days when Washington educational-software maker Blackboard Inc. went public at $14 a share the week before last and the stock immediately jumped to more than $20.

The initial public offering June 18 made Blackboard's two founders instant millionaires, gave venture capital investors a sweet payoff and raised flags that investors sometimes ignored during the last tech boom.

Blackboard is, without question, the most successful local tech company to go public since the tech bubble burst in 2000. The company dominates the college educational software business. Hundreds of higher education institutions use its software to link students and professors so that students can, say, call up a professor's lecture notes on their computers. Blackboard teeters between profit and loss but revenue totaled $92.5 million last year and is increasing more than 30 percent a year. It is moving into high schools and overseas markets.

But one of the lessons of the tech bubble was that good businesses don't necessarily make good investments, even after a hot IPO. The IPO documents issued by Blackboard raise two issues that could affect how the stock performs over the long term.

First, Blackboard insiders hold more than 20 million shares of the company's stock, which can be sold in the future.

Second, Blackboard's board is dominated by insiders: Chairman Matthew S. Pittinsky, President Michael L. Chasen and three of the venture capitalists who put up the money to get the company off the ground. The company has two outside directors, but one is president of Columbia University's Teachers College, where Pittinsky is a graduate student, and the other did not own any Blackboard stock before the IPO, company reports show. Shareholder activists argue that it is hard for a director who owns no stock to represent public investors.

Blackboard spokesman Dan Baum said it is company policy, based on Securities and Exchange Commission regulations, for managers to decline to comment during the "quiet period" immediately before and after an IPO. The venture capitalists and independent directors on the board also declined to comment, he said.

The usual reason for young companies to have an IPO is to raise capital to finance growth. But one-third of the 5.5 million shares offered by Blackboard at the IPO were sold by employees, venture capitalists and others who obtained stock before the company went public.

Blackboard itself raised $47.5 million and the other sellers collected roughly $24 million. It was extremely unusual before the tech boom for early investors to sell stock in an IPO because it could be seen as a sign that they were itching to cash in. In the late 1990s, the practice became more common but was still controversial.

Even during the IPO mania, though, it was unusual to see another transaction such as one disclosed in the Blackboard stock-offering documents: Pittinsky and Chasen each sold more than $1 million worth of their stock just before the company filed to go public.