In the last two years, the IPO market for tech companies has warmed up.LinkedIn, Pandora, Demand Media, Yelp, Brightcove, and many others have hit the public markets.
Since it’s a new world out there for today’s tech companies, we asked Brightcove CEO Jeremy Allaire about the process.
The number one takeaway for any startup that’s even thinking about IPOing: operate like you’re going to be a public company from day one.
Below is a lightly edited transcript of our conversation.
Business Insider: What’s it like being a public company?
Jeremy Allaire: We’re a few weeks into being a public company so it’s hard for me to make generalizations about what it’s like to be a public company. We haven’t gone through the ongoing iterative cycle of earnings and managing expectations and whisper numbers and all the fun stuff that goes on out there, so I can’t comment too much on that.
I think my view is when you become a public company, you’re certainly opening up the company’s business to the public but you’re also really building a new set of long term investor relationships, and investors that want to support and put capital into the business over the long run, that’s why you do it, for the value of that. On that front, it’s a positive thing.
We often got asked, “Why are you going public now?” There are a whole bunch of reasons. One is, I’ve always said we’re trying to build a global independent company and at some point that means becoming a public company. I think we’ve been building the business and operating the business as a public company for a while in terms of leadership and systems and people.
I think the other big thing is that a large amount of our business is with other public companies, and public companies doing business with other public companies matters, there’s a credibility and a transparency that’s there that is very real.
I think having currency, both capital and equity currencies, is valuable for investments or acquisitions. So those are a bunch of reasons and I think they’re all quite valid.
And then obviously you look for market windows where there’s an appetite from a broad base of investors for new companies, and given the incredible low interest rates and what that’s doing to the capital markets and driving more people into risk assets, that makes the market window more attractive right now.
BI: You just said you have an equity now. But, today it seems like a lot of startups are using equity to buy companies. What’s better about public equity?
JA: It’s complicated as a private company. If you’re looking to buy a company as a private company and you’re looking to use your equity to do that, the people on the other side of the table, typically investors in whatever that business is that you’re acquiring, they’re going to inherently discount the value that you’re suggesting your equity is worth, even discount it from a value that it may be trading in a secondary market.
And really, if you look at the secondary markets that are out there, it’s a very very narrow group of companies that are trading actively, like Facebook and Twitter and so on, it’s not like every private companies out there and there’s a liquid currency. In most cases, even in those big ones, there’s a very specific kind of board governance and approval over who can buy and who can sell. It’s not really liquid in the same way, so I think generally that’s one of the issues, people don’t value a private company stock as much as they value cash.
The other part is — sitting on my side of the table — if I’ve got conviction about my company and if I raised money at this valuation and I think I can get the company to this valuation, I would rather use cash than stock because I think stock will appreciate in value. As a private company, I would have used a logic like that.
But now as a public company, it’s clear what the market value’s at and it’s liquid.
BI: This isn’t your first IPO, correct? You took another company public in the 90’s. What’s different?
JA: Yeah, it was an Internet software company. I was not the CEO of the company, I was one of the founders and the CTO but I ended up being very involved in presenting the company to investors on the long going basis and working with wall street in that capacity. That work is very similar today. You’ve got mutual funds and hedge funds and long funds, and their investors and you keep them up to date and you maintain a relationship and with analysts that work for banks that cover companies, and so on. It’s very similar in that regard.
I think the fundamental differences are, there’s more overhead in terms of compliance, you’ve got the post-Enron type of issues like, SarBox, and making sure you’re complying from accountability, reporting perspective, controls, all the things that make sure companies are sound. We’ve got a fantastic CFO and general counsel and they do a very good job of managing that.
I think the other is the rules that govern how and when you can communicate and fair disclosure rules are very different, and so everything that you do publicly has to be available to all potential investors publicly. So if you give a speech it’s gotta be available publicly, so there’s more around that as well. You just have to manage that process.
BI: A lot of people say SarBox slowed down IPOs, do you believe that’s the case or is there something else?
JA: I think what slowed down IPOs is that the market collapsed in 2008. And we had a global recession for a couple of years. If you look at the years prior to that, from 04 to 07, there are a lot of IPOs. There was a lot of software-as-a-service IPOs, there were not a lot of Internet IPOs because a lot of the “Web 2.0” companies were just being born.
My company was really started in 2005 and Facebook and YouTube or any of these, there’s a whole wave of companies that was started in 04, 05, 06 kind of range. But there were a lot of companies that started earlier, I think it was in 2004 when Salesforce.com went public.
Then there was a whole wave of software as a service company that went public between there and 2007. Then the market seized up and as the economy started shooting up in ’10 there was another bunch of software and tech, and some Internet stuff, and then Europe.
So you have these waves and so on, but right now the capital markets are strong.
BI: If you had a piece of advice for startups that are potentially going to IPO in the next couple of years, what would you say?
JA: Even when we were 15 people sitting around the table doing our series A round, we had vision and conviction about the kind of company we want to build and we had an idea in our mind on what they would look like and we just never let go of that. It didn’t mean we knew exactly what the business would be or what exact shape it would be in, but we had conviction that online video was going to be a really broad base phenomenon. There was opportunity to build a significant global company and that’s what we’re trying to do.
That shapes a lot of decisions for you, if that’s what you’re trying to do, it shapes who you choose as investors, it shapes how much capital you raise, it shapes the kind of people you hire, it shapes your compensation strategy, it shapes so many different things — the kind of company you’re trying to build. And there are so many people that build companies on lifestyle basis, people who build companies to sell them, we built this company to be an independent company.
BI: And did you know that from the onset?
JA: Yes, I think that was the goal. I’m motivated by broad, global, horizontal challenges and those tend to be the ones that lead to bigger businesses and institutions.
BI: So, if you’re thinking about doing an IPO, be ready from day one?
JA: Yeah, obviously those people who stumble into this stuff were like, “Oh my God! How did this happen?” — I don’t know of Zuckerberg counts for that or not.
BI: He’s somewhere in between, but it seems like he stumbled into it.
JA: Yeah, people stumble into things and they’re like, oh my god, and it just happens.
BI: One last question: What’s it like being in the quiet period and having people savage you? We saw Groupon get mauled, any advice for other companies?
JA: Obviously people say things and you can’t respond to it but the bigger thing about going public is that there’s a lot to share about what you’re doing: your strategy, products and so on, and the market gets educated that way and that’s important.