It's lonely on the IPO highway.

Photographer: Cristina Arias/Getty Images

Uber Might Get An IPO, So Why Can't I Have One?

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
Read More.
( Updated
)
a | A

Uber announced this week that Brent Callinicos, the company’s chief financial officer, was leaving to spend more time with his family. With the departure of Callinicos, three of the 10 most prominent, venture-backed companies in the U.S. are flying without a CFO, making it hard for any of them to have an initial public offering in 2015.

It surfaced last September that Airbnb’s finance chief, Andrew Swain, had left the company. Snapchat has never had a CFO.

While Uber, Airbnb and Snapchat all probably have sizable finance teams, they still need CFOs in place before they can put together an IPO. I’m told by lawyers and bankers who work on these deals that it typically takes a CFO a year or more to settle in, understand the books and figure out what needs to be done to get a company’s financial performance and accounting camera-ready for public markets.

Executive turnover is common as a company morphs from startup to big business, so the recent CFO exits probably won’t dent the fortunes of Uber or Airbnb. But it does cast a pall on the broader tech IPO market, which was waiting for a mega-billion-dollar-company to go public.

With so many venture-backed tech companies valued at over $1 billion, investors had predicted that 2015 would be a big year for tech IPOs as these so-called unicorns went public. Uber, Airbnb and Snapchat were among the most hotly anticipated potential offerings. Some investors and analysts believed that the clamor to buy shares of those three companies, along with the current market rally, would create a hospitable environment for new tech stocks.

Alas, this year so far has been a disappointing one for tech IPOs. When you take biotech out of the mix, only three tech companies have gone public: the storage company Box, the health-care data company Inovalon Holdings, and the ad-tech company MaxPoint Interactive.

To date, these three stocks have had a mediocre showing. Box shares priced at $14 and they’re trading at $17. Inovalon priced at $27 and is trading just above $28. MaxPoint shares priced at $11.50 and are trading just under $10.

"The poor post-IPO trading performance of tech IPOs such as Box and Hortonworks probably has other tech companies turning to easier sources of funding for now," said Kathleen Smith, a principal with Renaissance Capital. "But we know that ultimately financial sponsors will need an exit strategy through an IPO or M&A."

One reason 2015 was supposed to be the year of big tech IPOs is that analysts and pundits thought the high private valuations of so many venture-backed companies indicated that they were healthy, mature businesses. So, the thinking went, those businesses would be natural IPO candidates. That just isn’t true, as my Bloomberg News colleagues Sarah Frier and Eric Newcomer have pointed out:

Here's the secret to how Silicon Valley calculates the value of its hottest companies: The numbers are sort of made-up.

Those big, headline-grabbing valuations associated with many startups also often come with strings attached that, in reality, make each share worth much less for all but a handful of lucky investors.

As some venture investors have pointed out -- most vocally, Bill Gurley -- many of these companies are still figuring out their business plans and strategies. They haven’t found a way to make money and they’re not close to going public. In other words, they may not be healthy and they're hardly mature.

Uber and Airbnb are reportedly among the few unicorns that have a business plan and a clear path to profitability. But in their CFO-less state, it seems unlikely that either company will go public this year and give the IPO market a much-needed boost.

Uber, Airbnb and Snapchat are in such cash-rich positions that they’re in no rush to go public anyway. For other companies that aren't as well-heeled, the implications of an unreceptive IPO market could be more troubling.

Gurley and others, including Khosla Ventures partner Keith Rabois, have warned that staying private for too long can create problems later. Startups that can't go public miss out on having cash and a currency that makes it easier in some ways to acquire companies and talent -- potentially making them less competitive.

Moreover, staying private while valuations escalate can force a company to eventually lower its valuation in order to raise fresh rounds of financing (known as a "down round") -- and thus dilute the value of shares owned by existing investors and other stakeholders.

As Uber, Airbnb and Snapchat recruit finance chiefs and buckle in for a few more quarters as private companies, their futures may still be bright. But other companies that had counted on them to go public and get the really big bucks flowing through Silicon Valley are feeling less optimistic.

(Corrects second paragraph and updates throughout article published March 20 to indicate Snapchat has never had a CFO. A previous version of this column said Mike Randall, who left Snapchat in January, was CFO. His correct title was vice president of business and marketing partnerships.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Timothy L. O'Brien at tobrien46@bloomberg.net