Photo: daoro via Flickr
Companies go public for a lot of well known reasons: to reward investors and employees, to help fund cash-intensive operations, and for acquisitions.But there’s another reason that entrepreneurs and VCs don’t often talk about.
Obviously, you have to be ready — your books have to be spotless and your growth has to be obvious.
But if you’re the first company to go public in a new area, you get to define the market. Everybody can see how much money you’re making, how fast you’re growing, and how many customers you have.
Doug Leone, a partner at Sequoia, used the examples of Salesforce, which was an early pioneer in delivering business software over the Internet (“the cloud”), and Amazon, which defined e-commerce back when the Web was new.
“Look at Marc Benioff and Jeff Bezos,” said Leone. “They stole the microphone and controlled the industry. Neither said, ‘I don’t wanna be public, someone might look at my numbers.'” (Imagine him saying that last part in a whiny voice for full effect.)
Tony Zingale, the CEO who took Jive Software public last December, agreed that going public relatively early — with an $80 million annual revenue run rate and no profits yet — was important to give Jive a leadership position in social computing for the enterprise.
Jive had been around since 2001.
But, as Zingale said, “Marc Benioff’s screaming from the skyway saying he invented the social enterprise, everybody and their brother’s now saying they have a solution, including Microsoft and IBM. I wanted to be first to the pulpit, to speak with evidence and confidence about our customer base and our technology lead.”
Bill Gurley of Benchmark Capital noted there are exceptions. Like if you’re a once-per-decade icon like Facebook.
“If you work at an iconic company, you can do whatever you want. You can go public at a rodeo if you want. But most of us don’t work at an iconic company. A lot of founders want to be first and set the market.”
The VCs and entrepreneurs spoke last night at an event sponsored by online financial advisor Wealthfront. The purpose of the event was to encourage young companies to consider going public, despite the perceived hassles like increased scrutiny and more paperwork and management overhead.