Yesterday, we explained how Russian holding firm Digital Sky Technologies is changing the way startups grow up.
Basically, DST is sitting back and offering big investments at huge valuations to successful startups that could IPO if they had to, but prefer to stay out of the public markets for another few years.
DST is a particularly attractive alternative to these companies because it tends to buy a lot of “common” stock and doesn’t ask for board seats.
But not every late stage startup is swooning for DST. We spoke to a CEO at one company, who, an the condition of anonymity, explained to us why one startup won’t be taking an investment from DST and looks forward to an IPO instead.
- Investor liquidity. It’s a lot easier to sell stock at the price you want when there’s more than one buyer.
- Recruiting. It’s easier to attract, motivate and retain employees when they can see their equity value every day.
- M&A currency. It’s easier to buy other companies with publicly tradeable stock than private stock.
- Raising capital. With overnight converts, etc, it’s much easier to raise new capital very quickly on the public markets.
- Branding. Nothing beats an IPO as introduction to the whole world as a succesful company that customers and partners should be proud to align themselves with.
- Control. DST doesn’t ask for one, but lots of late stage investors want a seat on the company board. This can be a nonstarter.
- Too many shareholders. Google finally had to IPO when too many of its employees became shareholders.
- Valuation. This doesn’t apply to DST, which usually buys more common than preferred stock, but late stage investors that buy preferred stock only can keep a late stage startup’s valuation low.
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