Benner on Tech: Who's Afraid of an IPO?
People are Talking About…
Pinterest, the site often used to make wedding mood boards, could soon be worth $11 billion. This news comes not long after Snapchat was reportedly raising money at a price that could make the message app worth $19 billion. My buddy and Bloomberg View colleague Justin Fox wrote a clever piece about valuations that you should read if you want to marvel at how much investors are willing to pay to get into hot private companies. But I’m not here to question whether or not Pinterest and Snapchat are overvalued. I’m here to ask why they’re raising money in another private round and not just going public.
Yes, money is flowing into private companies from mutual funds, hedge funds, sovereign-wealth funds and VCs. For the big companies that have been deemed “winners,” selling high-priced stock in private transactions is a way to get the cash they need now without dealing with regulators and more demanding public investors. And raising a ton of cash now means that these companies can probably put off an initial public offering for another year or so.
But once a company’s valuation rises high enough, say above a few billion dollars, the public markets are really the only exit plan left. Conservatively, it’s safe to guess that investors who get into these late-stage rounds want to make about 1.5 times their money, and few strategic acquirers can pay $28.5 billion for a disappearing message app that’s valued at $19 billion or $16.5 billion for a photo-pinning social network that’s valued at $11 billion.
The markets aren't perfectly wide open, but (as we saw with the Box IPO) they’re pretty receptive and forgiving. With a possible U.S. interest rate hike happening as soon as June, and Europe careening from one disaster to the next, this year seems like a nice time to take your company on the road show. Do it now, while tech stock prices are nice and high, and predicted to stay that way for the rest of the year.
I’m not the only person to say that companies should go public already. At last week’s Strictly VC conference, Khosla Ventures partner Keith Rabois said that companies that are putting off IPOs are, generally speaking, making a bad decision.
Companies should go public earlier rather than later [for] a variety of reasons. One is that you actually get a lot of cash, and that cash gives you leverage to do things. Secondly, you have a currency, and you have a price on your currency and you can acquire things, which is very difficult to do as a private company.
He noted that the most innovative tech companies -- Apple, Amazon and Google -- are all public, too.
A few private equity and venture folks in New York say they’re worried about the high-priced funding rounds that we saw last year and this year. In some cases, a big late stage round can imply that even after many years and several hundreds of millions of dollars, some companies are still figuring out what they want to be when they grow up. (Square came up several times in this context. As did Jawbone, whose troubles are well documented.)
One VC told me that they would look back on 2014 and question the prices they paid. This isn't because they think that companies like Airbnb are going away. It’s because ever higher private valuations are threatening to outpace what the public markets will pay, and that makes the exit door harder to squeeze through in a way that makes all of these private investors happy.
** Related: Uber is expanding its Series E venture financing round by $1 billion to $2.8 billion due to overwhelming investor demand, the New York Times reports. The company reportedly had revenues of $400 million in 2014.
The Kleiner Perkins-Ellen Pao retaliation lawsuit is underway. Re/code has an overview.
LoopPay was acquired by Samsung as the electronics giant looks to compete with Apple’s Apple Pay, the Wall Street Journal reports.
Reddit is donating 10 percent of its 2014 ad revenue to charity and you can vote for which cause should get the money.
Vessel, the subscription video startup, has struck deals for early access to music videos with Universal Music Group, Re/code reports.
Uber’s application to operate legally in Delhi was missing some information which will delay the city’s final decision on whether or not the company gets its permit, the Wall Street Journal reports. The company is also working with the breathalyzer company Breathometer to get drunks home safely, according to Engadget. Do you remember the last time you took Uber while drinking? Of course you don’t. You were blacked out. So Motherboard collected the best “Ubering while drinking” stories to help jog your memory.
There’s a whole world of startups that are being built on top of companies like Airbnb and Uber, the Wall Street Journal reports.
Virtu Financial is dusting off its IPO plans now that everyone has forgotten about the Michael Lewis book Flash Boys, the Wall Street Journal reports.
People and Personnel Moves
DJ Patil has been named the nation’s first ever chief data scientist and deputy chief technology officer for data policy, Wired reports.
John Stratton will become the head of Verizon’s wireless and wireline businesses, taking over from Dan Mead, who ran wireless, Re/code reports.
Hunter Moore, the notorious founder and operator of revenge porn site IsAnyoneUp.com, pleaded guilty to identity theft and hacking, Ars Technica reports.
Want more electric car project proof? Apple is being sued by A123 Systems for poaching five key employees in violation of their non-compete agreements to work in a new battery division, 9to5Mac reports.
The company says that the Federal Bureau of Investigation’s plan to expand its access to computer files is a constitutional threat. And Digiday reports that YouTube is cracking down on video makers that work directly with brands.
The conglomerate is spinning off its audio and video business in order to focus on music, movies and games, the Wall Street Journal reports.
The company’s fight with the Justice Department over gag order rules has expanded to include companies such as Automattic, BuzzFeed, the Guardian and Wikipedia, which have filed briefs in support of Twitter, GigaOm reports.
Lenovo shipped PCs that were embedded with malicious software that could hijack encrypted web browsing, Ars Technica reports.
Whalerock is cutting deals with celebrities including the Kardashians and Howard Stern to make their own personal video networks, the New York Times reports.
News and Notes
The U.K. Parliament wants to reclassify the Internet as a public utility, Ars Technica reports.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.