Glenn Solomon, a partner at GGV Capital
who also has a blog Going Long
, yesterday posted an article on Fortune called "Is your Company IPO ready
" that I found interesting. Rather than focusing on whether a company has a $100 million revenue run rate, which many banks used to use as a metric (along with several quarters of profitability), Glenn identifies three key attributes that the company must have to go public: (1) predictability and visibility; (2) underlying growth potential; and (3) no single points of failure (no significant vulnerabilities). It's a good and useful article.
From my investment banking days at Bear Stearns and CIBC Oppenheimer during the Internet bubble, these points ring true. However, while these may be three key attributes that a company must have in order to go public, they are by no means the only attributes a company must have in order to be ready to hold a successful initial public offering. Other attributes could include a phenomenal management team, differentiation from competitors, strong IP portfolio, impressive and consistent financial performance (for most tech companies this is rapid revenue growth), real cash revenues (no reciprocal agreements), operating in a large, rapidly growing market, sterling reputation, well-developed internal business processes and controls, and on and on. And while a tech company may not need $100 million in current revenue run rate to go public, they should be close (for example, a $20 million revenue run rate won't do it, but if a company has all of the other attributes, perhaps a $70 million revenue run rate might be sufficient). There are a lot of pieces to the puzzle that are required to fit for a company to be ready to go public and have a successful IPO, and the three attributes that Glenn identifies in his article are essential.
Here's a link to the article: http://finance.fortune.cnn.com/2013/02/25/are-you-ipo-ready/
There have been a number of interesting posts recently about the changing environment for consumer Internet companies:
Fred Wilson's "What Has Changed
" which provides his thoughts on the changing funding environment for these companies. He lists three developments that have made it harder for consumer internet companies to get funded:
- The consumer web has matured,
- The consumer is moving from to the desktop/web to the mobile/app, and
- The momentum/late stage investors have moved from consumer to enterprise.
Another post, "R.I.P. Frothy Times, A Return To Normalcy
" by Alexia Tsotsis on Techcrunch.com, also discusses the increasingly difficult environment for consumer internet companies. According to the post (citing Dow Jones), investment in consumer internet companies is down 42% in the first nine months of this year compared to the same period last year.
These posts echo what I've been seeing in the industry. I would add that the public markets have been especially harsh on companies that disappoint (Groupon, Facebook, Zynga, etc.) and that IPO buyers are more scrutinizing, making it harder for consumer internet companies to go public. Another impact is that under FAS 157 (ASC 820) guidelines, funds may need to mark down some of the consumer internet companies in their portfolios based on the poor performance of public comps.
"What Has Changed" by Fred Wilson: http://www.avc.com/a_vc/2012/11/what-has-changed.html
"R.I.P. Frothy Times, A Return To Normalcy" by Alexia Tsotsis:http://techcrunch.com/2012/11/30/i-see-a-glass-thats-twice-as-big-as-it-needs-to-be/
GigaOM has an interesting article today "The economics of Google Fiber and what it means for U.S. broadband
." The article discusses Google's fiber to the home network in Kansas City, Mo. that provides gigabit (yes gigabit) internet access for $70 per month. And making a profit doing it. Incredible. How is Google doing this?
- It makes its own gear. Google cuts out the middle man, use customized basic elements, and can control all of the physical infrastructure in its network.
- Social engineering. It costs a lot of money to send a truck out to wire fiber to the home. Google reduces this cost by getting neighbors to sign each other up for the service. When enough people have signed up in a neighborhood, Google will send the truck. Smart idea.
- Google TV Box. Google has developed its own TV box that provides a DVR, TV channels and a modem that provides Wi-Fi connectivity to the home.
If Google starts rolling this service out to other markets, I think the traditional access providers are going to be in tro
Mark Andreessen, co-founder of Netscape and venture capitalist at Andreessen Horowitz
, was recently interviewed at the Fortune Brainstorm Tech conference in Aspen, CO. The interview covers a wide range of topics including the $100 million Series A investment made by Andreessen Horowitz in GitHub, the environment for taking a company public and being a public company, public tech sector valuations, and current innovations in technology. The interview is well worth a read. Here's the link: http://tech.fortune.cnn.com/2012/07/16/marc-andreessen-transcript/