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The IPO process should be difficult

Since the recovery of the first internet crash in 2001, it’s an old saw to hear entrepreneurs and investors (mostly the latter), talk about the pain of going becoming a public company. 

And recently some friends of mine have launched a SPAC with a plan to help companies become public with less “brain damage”.

I have a few thoughts on the subject.

In the NYT article, Chamath points out that Facebook was the poster child of such a strategy. That is quite true but they were also the poster child of a secondary stock for private shares which was virtually unheard of previously. (And I’m not sure the secondary stock world has been a healthy thing for everyone but I’ll leave that for another post). And even though FB waited a long time to go public, they still provided massive equity growth after their IPO which is an extraordinary thing and a positive dynamic for the market/industry. 

Going public should be rigorous. It should be for the best companies. Recall in the late 90′s startups were going public with zero revenue and and endless losses. In addition, you had a bogus process for pricing private stock, we didn’t have a 409a process, and tech companies were even backdating options. Some had VCs specific programs/staff/infrastructure in place to take companies in less than a year. 

There will no doubt be great companies will choose to stay private longer or may not go public at all. That’s always been the case. But I like that the bar is high for companies to go public. It’s a healthy and constructive thing for the company and their customers and employees. I’ll end this post with some wisdom my good friend Fred Wilson shared about going public:

I appreciate why some founders want to avoid being public. I spent the last day and a half being a public company director. There are parts of that job that suck.

But having seen this movie (going public/being public) many times now, I think there is a lot less to fear than most entrepreneurs think. It’s good for the company to be held accountable, it’s good for the employees and investors to have liquidity, and it’s good to join the ranks of the best companies in the world.

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The NYT article also describes an effort by Eric Reiss to encourage longer term shareholders. I like that concept a lot and would love to learn more about it.