Editor's Corner

Banking on the McCaw touch

Clearwire's IPO is expected this week (see story #1), and the buzz surrounding it has to do as much with founder Craig McCaw's vision and business acumen as with the underlying business case for the company and its WiMAX technology. It is good to see that in the midst of all the hoopla, some analysts have kept their cool, pointing out that we should be more reflective both on McCaw's record and on the real difficulties Clearwire will face in the marketplace.

First, McCaw saw some flops in his business career. In 2002, for example, XO Communications filed for bankruptcy. McCaw also was an investor in Teledesic, a company that planned to loft a fleet of satellites into space and use them to provide phone and Web service. The company raised about $1 billion from savvy investors, including Bill Gates, but never launched a single satellite.

Whether Clearwire is as much of a gamble as Teledesic was, is debatable, but would-be investors may want to remember a couple of facts before they reach for their wallets. Note, for example, that Clearwire went through more than $500 million of its cash last year, but it is still a very small company. Yes, it will have about $1 billion in net cash after its IPO, but its spending plans call for burning through about $800 million of that. As the Wall Street Journal notes, investors should also be mindful of the fact that the company will be selling only a 13 percent stake. This rather small float means that the company's need for cash may well force it to offer more stock in the future, thus diluting the original shareholders' stakes. -Ben