When former Wall Street analyst Lise Buyer helped take Google public in 2004, anything seemed possible. Yet on the heels of a quarter when not a single technology company went public, most in Silicon Valley are no longer sanguine about their options. Buyer doesn’t understand why.
“I get cranky when talk turns to an IPO ‘drought,” she says. “VCs may be frustrated, but they should be happy about having to wait longer. Going public requires a lot of time and focus and energy on things that don’t involve growing a business. And companies that wait longer to go public tend to perform much better once they do.”
Buyer has reason to have faith in the IPO market. Since leaving Google in 2006, she’s been helping late-stage companies navigate the challenging process of going public at her company, Class V Group. She works with four companies a year — a pace she set for herself after years of working 100-hour weeks. But it isn’t hard to believe her when she says that she has been contacted by numerous others. “The biggest, happy surprise for me is number of companies that are thinking of IPOs in late 2009 and 2010, and that what to know what they should be thinking about from now,” she says.
On Friday, Buyer and I talked at length about what she regrets about Google’s IPO, where the bar is for companies wanting to go public today, and why she’d like Facebook to know that should it be looking for help with its IPO, well, she’s available. I posted the first part of that conversation here. Following is the rest.
You left Google a year after its IPO for the voice applications company TellMe. Were you expecting to help TellMe go public?
I left Google because I was increasingly delegated to the IR role, and I wanted to have a more active role in management. As for TellMe, we all thought there would be a consumer Internet opportunity for them, but then we realized that possibility was farther out than we hoped. And as strategic partnership discussions coalesced into talk of TellMe’s potential acquisition [Microsoft acquired the company in March 2007], I realized it wasn’t going to be a place for me to do what I wanted to do.
So you decided to open your own business?
I took some time off after TellMe, but I don’t sit still well. And after thinking I’d get more operating experience at Google, then going to TellMe, it dawned on me that I was pretty much going to be stuck in financial world. Then I thought about my experience as a T.Rowe Price analyst, as a VC, as someone who helped orchestrate the IPO of a company and who sits on the board of a public company [Greenfield Online], and I reasoned that having been at every seat around the table of an IPO was valuable and that I should do something with that experience.
Why do you do for IPO candidates?
Try to level the playing field. Issuers so often have done no deals or they’ve maybe been through one or two but don’t have a lot of experience going through a public offering. Add to that that the banks are so often focused on having a tremendously successful IPO, whereas management has to run the company afterward; they have to live with whatever they say on their roadshow. Also, as I learned at Google, just because certain things have always been done the same way doesn’t always mean it’s the best way. I’m there to help management ask questions and to ensure the deal is theirs and is in their best interests.
Why do you think this year is so much worse than last for IPOs?
The market is much more finicky, but that means the folks who are planning for an IPO in 2008 have rock solid finances. The balance sheets are stronger this year than last year because they have to be. Public investors just don’t have the appetite for risk. They’re saying: don’t take these off the grill until they’re well done.
Where’s the bar, specifically?
It’s double-digit revenue growth. You need to be profitable. You need to be able to convince investors that you’re at the beginning of a very large opportunity, and that whatever advantage you have is sustainable. I don’t think it’s a matter of having $100 million in revenue. That could be the case with many companies, but you also have to show that your business can grow meaningfully in the next couple of years.
How might a company that can get through the process avoid leaving too much money on the table?
There’s no perfect answer. It comes down to what’s important to management. Some just want to see their stock be a rocket ship on the first day. Other managers might choose to price their stock aggressively thinking that the extra, say, $10 million, will help them build a stronger company, even if the IPO isn’t a resounding success. A lot depends, too, on who are the interested investors. If it looks like fast money, you’re probably better off with a lower price.
In the wake of Google’s successful IPO, do you promote the auction process to your clients?
Sometimes. I think auctions are a terrific way to go, but I would neither try to talk a company doing it if it didn’t want to, nor would I try to talk one out. The biggest advantage of an auction is that you generally get better pricing information and learn about where the real ongoing interest in the stock lies. And you distribute it fairly. The allocations are done on a fair basis, not based on who knows who.
But auctions haven’t taken off. Why not?
There haven’t been many because so many people are appropriately nervous about the IPO process. Most just want to do it the tried-and-true way: let’s just get through it, get our money, and keep our heads down. [Hosted software maker] Netsuite’s auction in December was a big success, but there you had a powerful founder-entrepreneur, Larry Ellison, who wanted to try things in a different way.
Another challenge, and this might change, is that generally issuers like to go with top-of-the-heap brand-name investment banks. And they don’t like auctions because they have much less control.
Frank Quattrone recently told conference goers at Stanford that the regulations that built a wall between sell-side research analysts and investment bankers arranging initial public offerings should be dismantled because they’re “hurting the competitiveness of our country.” Thoughts?
First, it’s great that Frank’s back in business. There’s no one better in M&A and it’s great that he’s out there being strategic; that will help everybody. I have a slightly different perspective on the research issue, which is that solid companies will attract research even without the help of bankers. I worked last year with 3Par in data storage; it went public last year, and has nine sell-side analysts following the company. Let’s give some credit where it’s due. Sell-side analysts are generally clever enough to find interesting companies to follow.
Speaking of interesting companies, what do you make of Facebook as an IPO candidate?
To be candid, I’d love to work with them. I think it’ll be fascinating because like Google, they like to do things their own way. And that’s been tremendously successful so far. I think that clearly Facebook’s business model needs to be well-proven before anything happens, and that they’ve been smart to put off the process until they put all the pieces into place. Also, though it’s terrific to have Microsoft as an investor, Facebook’s valuation may or may not turn out to be right valuation for public equity investors.
But I do think that what they’ve built is tremendous and enduring and that they’ll find a way to turn theirs into a steadily growing, highly profitable business.
You’ve worn a lot of hats. Which of your jobs have you liked best?
I love what I’m doing now. I also really liked being a buy-side investor. You have the same public information as do competitors — the same press releases, the same data. The challenge is: how do you find the rest of the story? And once you do, then you have to place that bet. It’s not just the theoretical aspect but actually putting your money where your mouth is. It’s exciting.