Silicon Valley executives and investors gathered on Tuesday at the Reuters Technology Summit in San Francisco to discuss whether new sources of private financing have dimmed the allure of an initial public offering.
(Reuters) – Silicon Valley executives and investors gathered on Tuesday at the Reuters Technology Summit in San Francisco to discuss whether new sources of private financing have dimmed the allure of an initial public offering.
Below are highlights from the event.
Dave Goldberg, CEO of SurveyMonkey
“There are a lot of good reasons to go public. Capital at low cost, a currency for acquisitions and exposure for the business. Liquidity for investors and employees. We have a very well-known brand. Customers use our product for free or for a low annual subscription. It would not help us as much as other companies. There is deep strength in private equity markets these days. There wasn’t that capital there before.
“We’ve structured ourselves so that we can do this again in the future and create liquidity for investors and employees and stay private. If the benefits are there we will do an IPO, but if not, we won’t.
Kevin Hartz, CEO of Eventbrite and co-founder of Xoom Corp .
“It’s been a rough 10 years for public markets. There have been crazy things in terms of regulations like Sarbanes Oxley. It’s a headache to be out in the public markets. We’re interested in building a long-standing company. We have a quasi IPO in effect to raise money and give employees liquidity. It went remarkably smoothly.”
“Maybe Dave is more evolved than I am. I used to say that we were going to go public all the time. Then I spoke to Dave. John Doerr used to say that if a company increased revenue growth for seven quarters in a row it was then time to go public. Now there are many more choices of financing. Different investment vehicles for all stages of a company’s evolution.”
“You don’t want to be beholden to investor whims outside of your control. Picking the right capital is a key piece. There’s a new class of secondary trading happening to provide liquidity in some cases.”
Thomas Laffont of investment firm Coatue Management
“You have two entrepreneurs who are more interested in continuing to stay private versus previously going public. They have the ability to curate a collection of investors that mirror where the company is at. At the beginning, you need an angel investor or a VC to help build. Later you need a different type of investor. Entrepreneurs can now go public on their own schedule. We want to enable entrepreneurs on their own schedule.
“We’re not set up for arbitrary deadlines in our funds. It should not matter if you are part of fund one, two or three. We like to hold an asset forever – as long as our fund is around, which hopefully it will be … A company you can hold forever, that’s the ultimate dream as an analyst.”
Roelof Botha, a partner at venture capital firm Sequoia Capital
“It depends on the time horizon. Look how long it took for Google to go public. It would have faced more constraints if it had gone public sooner. It’s important to choose initial investors who are not twitchy and rushing for an exit. We love it. Wall Street’s quarter by quarter lens may make the CEO make sub-optimal long-term decisions.
“There are structural issues for most venture capital and private equity investors. Sequoia has more leeway. There’s a 10-year life to funds. A lot of big pension funds want the money back. Investors are hurting themselves by putting a lifetime on these funds. That’s what the private investment lifecycle is set up for today. Sequoia can get away with it – to say, hold an investment for 20 years.”
“It’s going to force a change in the behavior of public pension funds. Usually they are focused on time horizons. They have carved up private-equity investments into discrete buckets using sophisticated models. The market is changing on them. If they don’t change they will be competed out. They will change if they see these new investors generating higher returns through this new approach. Pressure can force a company to be sold or to do an IPO to deal with timing issues. That causes a bunch of bad returns. You are basically forcing a sale. It creates tax consequences for limited partners. The money passes back to investors and they have to wait for you to find another investment. I’m an LP and one of my main criteria is how long my money will be at work without these negative tax events.”
“As the PayPal CFO, I experienced Sarbanes-Oxley, which over-compensated and was more focused on checking the boxes. Like airport security – is it really worth it? It’s only gotten worse since then. CEOs and CFOs of public companies spend the majority of time on the road talking to investors rather than running the business. The pain of that is more apparent now. The scale that is required of a business to go public is higher now. If you miss guidance in the first six months of being a public company you are in the penalty box for a long time. If you easily beat, then you beat too much and you are an idiot because you should have forecast higher.
“Late stage capital wasn’t there in 2003 and 2004. This capital did not exist. YouTube didn’t have a financing option like this to grow the business so an acquisition by Google seemed very attractive at the time. I wonder what would happen to a YouTube today?
“The secondary market formally emerged around 2006. It started with Facebook secondary share buying and the ecosystem evolved there.
“Facebook certainly set the trend. It was a successful company and did not go public for a long time, which created a shield for other entrepreneurs to do the same.
“The markets are still a great pricing mechanism. The one worry that we have is at the end of the day there’s a buying and selling mechanism that leads to a price. In the private markets there’s only a buying mechanism. Because of the money available … there’s going to be a lot of private valuations that potentially aren’t going to correlate with what the public market is thinking. There’s a disconnect between the two. A company may get a significant private market valuation only to become a broken IPO later. There is that danger as this market gets bigger and bigger.”
“There’s some bad behavior on investors’ parts. They want a great name. They want to be able to say ‘we invested in X company.’ I won’t name names. And the company is interested in a high valuation. That will come back to bite companies and investors when it comes to an IPO eventually.
“There’s a lot of value in having a public market investor come in during a late stage financing. They bring a different viewpoint to time horizons and growing your business. We brought in Tiger Global to help our international growth strategy. They’ve been very helpful to us. Tiger just led the round we just did. I value their advice and opinion. Their knowledge of the public markets will be incredibly valuable. We will know already how public markets will view us because Tiger already has a view.”
“Companies are taking advantage of the ability to file confidentially. They have not taken advantage of looser financial controls. Most companies are making use of these stealth IPO filings. It’s almost the norm now. Why have the disclosure of a full IPO filing. Investors pour through your financials, but you are in a quiet period and you can’t react. It’s terrible.”
“I took my first company public. I know what it’s like. It’s the pain of being public, rather than the pain of going public. The CEO and CFO of public companies spend a tremendous amount of time communicating with investors and making short-term decisions for the stock. If the stock slumps, employees leave and customers lose faith. Everybody has to worry about the stock price.”
“The JOBS Act changed the maximum shareholder count to 2,000, and employees don’t count. That will make a big difference. That provision will allow companies to stay private longer, ironically.
“In public markets, I would get rid of Reg FD. Companies can’t say anything real anymore, so investors have less information, not more. It would be easier for companies to be public if they could have more honest open conversations with investors. If you’re a 10 percent shareholder of a company should you not be able to have a better dialog with the company versus an owner of one share?
“Retail investors should be in public equities but not in individual stocks. People are about to realize they are going to lose a lot of money in bonds and the debt markets.
“My father-in-law, who is a doctor in Florida, asks me occasionally about a private tech company and the opportunity for him to get in early. If it’s an Internet company in California and it’s getting to doctors in Florida that’s probably a negative signal.”