IPOs traditionally are the grease that keeps Silicon Valley’s gears turning. There’s no lack of startups today, but the big question is whether initial public stock offerings will ever become a viable way for investors, founders, and employees to get a return on their money and work. When even the likes of Facebook and Zynga haven’t gone public yet, the prospects for IPOs look almost as bleak as ever. This morning at the TechCrunch Disrupt conference, Benchmark Capital partner Bill Gurley and Michael Grimes, managing director of global technology for Morgan Stanley, will be discussing what we can expect in coming years with TechCrunch editor Erick Schonfeld.
Grimes says there are new ways for companies to get larger sums of money and to help the founders get some liquidity, such as second markets for private stock. There’s a belief that the IPO market is closed. It’s not, but it’s more discriminating. There’s a bit of a supply issue, but there’s also a bit of a demand issue.
Gurley says there won’t be one IPO that will change the IPO market after it. There are 14 companies that IPO’d in the last few (one?) year, but no one writes about it because not as many are happening in Silicon Valley.
So why aren’t Silicon Valley companies going public as much? Grimes says investors think there’s too much of a leap of faith to believing the apparently ready companies are profitable enough. Gurley says companies must be profitable or convince investment groups they will be. That’s tougher now.
Why aren’t the obvious companies such as Facebook, LinkedIn, etc. going public now? Gurley can do whatever they want. LinkedIn has hired a public-company finance guy, they’re getting ready most likely.
Should Facebook go public? Gurley: They get to do whatever they want, they’re extremely successful. The argument that Facebook doesn’t want the scrutiny of being a public company doesn’t hold up. You don’t hear Salesforce’s Marc Benioff or Amazon’s Jeff Bezos saying that.
But they say they’re still experimenting and don’t want to be limited by the need to show quarterly results. Gurley: And Bezos isn’t? But a company as successful as Facebook can raise whatever they want from private sources.
Of the 40 (or is it 14?) or so companies that have gone public in the past year at $1 billion-plus valuations, why are they not very well-known? Gurley: 75% of the deal value is not from Silicon Valley. So people here have blinders on.
So why should Facebook go public at all? Gurley: To get liquidity for shareholders and employees. To do acquisitions. Grimes: The employee liquidity can keep the team motivated to work late nights.
What are the prospects for tech IPOs this year and next? Grimes: Could be 40 or 50 next year, compared with 30 this year. Gurley: I would predict you’ll see Skype and LinkedIn go public.