Article Correction: The following article has been altered to correct inaccurate Q2 2014 statistics in the table below. Data under the “Cash On Hand” column for Viggle, Inc. has been updated to reflect accurate Q2 2014 figures. All reference of Liquid Holdings Group, Inc. and Aerohive Networks, Inc. has been removed, as the accurate data does not warrant these companies’ inclusion in this article.

The recent blockbuster initial public offering, or IPO, for Alibaba Group Holding Limited (Nasdaq: BABA) helped secure an impressive milestone.

According to Renaissance Capital, “In terms of proceeds, 2014 is now the biggest year for the IPO market since 2000, when 406 companies raised $97 billion. Renaissance identified many more IPOs still set to be priced in the fourth quarter, perhaps setting the stage for an all-time record.

Yet investors should also heed the concern of venture capitalist Marc Andreessen — older investors may remember Andreessen as the founder of Netscape Communications. In a recent Twitter post, he warned that many young companies may eventually “vaporize.”

Market open, market closed
One of the hallmarks of the current bull market is its remarkable IPO backdrop. We’re seeing so many deals simply because institutional investors want to buy them right now. In finance terms, “the capital market spigot is open.”

#-ad_banner-#Yet all bull markets end, which creates an especially hostile environment for companies in need of money. Companies that fail to go public before the party ends will have to muddle along with their venture capitalist backers for a while longer.

And then there are the companies that already went public, but failed to raise enough money to carry them through break-even. These firms could eventually run out of money, without any recourse to further financing. That’s the point that such companies will become “vaporized,” according to Andreessen.

Why the dim view? Because it is has happened many times in the past. Companies become giddy with their IPO proceeds, open lavish offices, boost marketing budgets and then find that cash is dwindling a lot faster than they realized.

His logic compels me to dig in and look at which companies are most vulnerable to a shutdown in capital markets. I’ve compiled a list of companies that went public in 2013 and 2014, are expected to remain unprofitable at least in 2014 and 2015 (if not longer) and, as a result, have a shrinking cash balance.

If you own one of these stocks, you need to rigorously assess whether they are a candidate for “vaporization” in coming years. Simply moving toward that event, by generating further losses, will push their shares ever lower.

That phenomenon has happened to biotech firms in almost every capital market cycle. There are now dozens of biotechs that saw their public trading debut in 2013 and 2014 that face such a concern. A focus on this sector would take far too long to fully analyze in this article. Suffice it to say, if you own any biotechs that continue to burn cash, you need to closely scrutinize how they would fare without access to further capital. Having at least two years’ worth of cash on hand (in relation to the cash burn), is a good litmus test. Yet even outside of biotechs, I have found a host of other recent IPOs that may run into a cash crunch.

All of these companies have less than two years’ worth of cash on hand left, in the context of their quarterly operating losses in the second quarter. (Marin Software, Inc. (Nasdaq: MRIN) and MobileIron, Inc. (Nasdaq: MOBL) have slightly more than two year’s worth of cash on hand, but may cross that threshold when third quarter cash balances and burn rates are tallied up.)

To be sure, some of these companies hope to reduce their burn rates as revenues rise. But that assumes two factors:

First, that they can keep expenses from rising yet higher as they build out the business.

Second, a compliant economy will help them deliver the sales growth they currently expect. A number of companies on this table have already had to reduce their sales growth forecasts and may need to do so again in the future. That’s because, right out of the IPO gate, companies tend to over-estimate their sales growth potential.

What happens when cash starts to dwindle? Well, you can see it in the stock price charts of a company like Cyan, Inc. (Nasdaq: CYNI), which ignored the balance sheet weakness and now trades far from their IPO prices.

There are several investable angles to this theme. First, you can short such companies that look to be in clear need of a fresh capital raise. The longer they wait, the lower the stock will likely fall. You can hold those shorts right through the time an actual secondary offering is announced, as shares tend to fall even lower on that day, as deals are often priced at a discount to the current stock price.

You can also keep track of these stocks and wait for them to announce that they have shored up their balance sheet. Starting the day after such an announcement, shares tend to post a relied rally, and you may have a chance to buy shares of a good company at a very attractive price.

Risks to Consider: As an upside risk, companies in cash burn mode can become heavily-shorted and could be pushed higher by a short squeeze if the burn rate diminishes at a fast pace.

Action to Take –> As I noted earlier, biotech stocks are very vulnerable to capital markets trends. Many of these firms came public in the past 18 months and, in most cases, have less than two years of cash left. An inability to replenish the balance sheet within the next few quarters could lead to a death spiral, as potential backers wait and wait and acquire shares at an even lower price.

The action plan for the stocks in the table above is clear:  We’re heading into earnings season and burn rates and cash balances will soon be updated. That gives you time to do the math again and see which of the recent IPOs are at increasing risk of being vaporized.

If current trends hold, then some of these companies may not exist in the coming years. In contrast, StreetAuthority’s “Forever Stocks” are companies we bet will not only last virtually forever but will continue to grow and outperform year after year. These companies dig a wide moat around their business, continuously innovate and shower shareholders with dividends and buybacks. With this in mind, we’ve identified a list of the 10 must-own Forever Stocks. To learn how to get the full list of Forever Stocks, including names and ticker symbols, visit this link.