Last week, we sat down with Silicon Valley IPO Icon Lise Buyer, Founder of Class V Group, to answer that exact question. As a public equities institutional investor, investment banker, venture capitalist, public company board member and IPO project manager, Ms. Buyer has a unique perspective, which she shared with us on the SharesPost Expert Series on Friday. In a wide-ranging conversation with Ms. Buyer, she also covered a number of topics we at SharesPost hear regularly in our discussions with institutional investors.
For those who missed the webinar, we wanted to recap some of the highlights. Upon request, the entire webinar replay is available online to SharesPost accredited investors. Check here for a transcript and the presentation.
Why are so many companies holding off on an IPO? There are number of reasons why companies are delaying IPOs at this point, or kicking that [IPO] can down the road. First, many of them raised significant amounts of capital when the private equity spigot was opened and so they do not need the capital. Since it is undoubtedly easier to operate as a private company than a public one, many have chosen to stay private for as long as they can. Secondly going public is time consuming and requires significant effort and money. Third, private company valuations grew to some impressive levels over the past few years. It is unclear that public markets will place the same lofty values on companies yet to prove themselves at those levels. Some private companies are making the bet that, if they wait, private valuations will rise such that an IPO does not have to be a down round. Fourth, many understand that while there are significant advantages to being public, there are also challenges. Therefore, they are choosing to remain private while they ensure that their teams, systems and forecasting abilities are fully prepared for the rigors of public scrutiny.
IPOs are the new flat round? Last summer, Ms. Buyer noted that it was not uncommon among VCs to acknowledge to CEOs of their portfolio companies, that “IPOs are the new down round.” But since the third quarter of 2016, the pendulum appears to have swung favorably for tech IPOs. Buyer noted that the “eBay auction price” methodology worked well for a number of IPOs over the last year. In other words, bankers started with a low offering price, probably below the most recently private financing, and waited for excitement to build among public investors. Buyer expects more companies to follow such IPO pricing approach, noting Snap’s initial price range.
Regulatory scrutiny could become lighter under the new administration. Ms. Buyer emphatically noted that the removal of the 500 shareholder limit in the JOBS Act removed a critical catalyst for companies considering an IPO. She strongly disagrees with those who have said Sarbanes Oxley is an impediment. Expecting more defined financial processes from private company management teams and adding a couple of “speed bumps” on the IPO process isn’t a completely terrible thing.
Expect a general uptick in Tech IPOs in 2017 and 2018. Ms. Buyer highlighted that some unicorn CEOs and VCs are watching Snap IPO very closely, both in terms of sustainable valuation post-IPO and through the first few earnings releases. However, Ms. Buyer doesn’t expect the floodgates to open for Unicorn IPOs after Snap – probably a gradual uptick versus the prior 12-18 months. Buyer’s commentary largely ties in with our Private Tech Investor survey.
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