Not everyone is bearish on IPOs
To be sure, the last year has not been kind to the share prices of the country's (once) hottest consumer Internet companies. Prior to their IPO's, Groupon, Zynga, Pandora, and Facebook were darlings of the tech world. They've learned the hard way that Wall Street does not give a shit how hyped they are. As public companies, Wall Street's opinion trumps everyone else's.
Fear of the public markets has been pervasive in the tech world. Last month PandoDaily's Nathaniel Mott noted that an IPO-themed panel at the F.ounders conference had one takeaway: "Don't go public." He wrote in conclusion:
Don’t go public; eventually, you might have to go public, but there are ways you can avoid that; and the public market is hard to navigate for small companies. ... Stay private for as long as you can. Please, for the love of everything capitalist and wonderful in this world, don’t mention Facebook.The feeling is mutual among IPO candidates, based on activity thus far this year. 2013 has only seen five tech IPOs to date, twice as many had gone out by this time last year. It's hard to tell how many more are rushing in that direction.
That hard-to-tell factor may be because every company that can use the new JOBS act disclosure rules is using them. This means anyone that qualifies as an "emerging growth company" based on revenue can file its paperwork to go public privately, only releasing it three weeks before the IPO. More than 160 companies (tech and otherwise) have filed or priced under these rules since they were introduced last year. Companies are eager to take advantage of the increased privacy -- that way things like delays aren't publicized.
Still, there are bright spots. Marin Software, which listed last week, had a strong first day trading, although its share price has fallen over the last week. Shutterstock, which listed in October, has seen its shares rise from more than double since then. Cloud company Rally Software has filed for an IPO; AppNexus, Atlassian, and HubSpot are expected to file soon, too.
And despite the slow start, the people who have the most to gain from a strong second half of the year for tech IPOs still believe. Dan Primack argued as much after talking to many of the hopeful bankers, lawyers, advisers, and VCs, attributing the year's slow start to concerns over the fiscal cliff and the elections.
"In short, the season has only just begun. We're a long way from mathematical eliminations," he concluded.
Last week I spoke with yet another tech IPO bull: Scott Cutler, EVP and Head of Global Listings at NYSE Euronext. The company has no doubt benefitted from competitor NASDAQ's spectacular bungling of Facebook's IPO. (Facebook investor and LinkedIn co-founder Reid Hoffman called it a "pretty egregious fuck-up.") NYSE was home to 23 of last year's tech IPO's, accounting for 52 percent of those listed in the US. This year it's holding down 100 percent market share, selling shares for Silver Spring, Marin Software, and Model N. Cutler notes that NYSE had around 5 percent market share when he joined in 2006.
Cutler disagreed with Andreessen's claim that tech stocks are undervalued, arguing that venture capitalists overvalue them. VCs value companies in the private market based on scarcity. Being a public company eliminates the hype, he says. "There's so much transparency that there's not a lot of patience for posers."
Citing the most common benefits of being public -- cash, public currency to hire, and credibility -- he noted that public markets do drive down valuations, "but they're right at that point in time."
Cutler says companies shouldn't think about postponing going public, but they should instead decide carefully on the best time to do so. The JOBS Act emerging growth company rules, which Cutler helped develop, gives smaller companies breathing room on that timing.
This year may have gotten off to a slow start but Cutler expects to see as many IPOs as 2012, a total of 100 to 150 IPOs, which he calls "the new normal."
Hype-driven IPO hopefuls take note.
[Illustration by Hallie Bateman]