One of the biggest reasons a company goes public is to raise more money.
But with so much private capital available in the VC market these days, startups are increasingly delaying going public.
By doing so, they get to avoid the investor scrutiny or SEC regulations public companies typically have to deal with. It also allows them to stick to their long-term vision without having to meet short term shareholder demands.
Conventional wisdom says it’s better to delay going public if the money’s available elsewhere.
But that doesn’t mean to avoid IPOs at all cost. There are other benefits to going public, aside from the massive cash infusion companies see out of the gate. Just ask Lending Club, the online credit marketplace that raised $US870 million in its IPO last December.
“Since the IPO, we’re seeing more awareness and credibility,” Lending Club CEO Renaud Laplanche told Business Insider. “It’s helped us with partnerships and recruiting.”
Laplanche says by going public — which was the largest US tech IPO last year — Lending Club was able to get that public stamp of approval, validating its business to people who may have had concerns over the way it works.
That’s particularly important when you’re in a highly regulated industry like finance, as Lending Club is.
“Large companies are more willing to partner with us, and we’re less perceived as a startup, or a risk,” he says.
Since going public, Lending Club has been able to strike partnership deals with Citibank and BankAlliance, a consortium of 200 community banks. It’s also signed deals with Google and Alibaba to help their respective partners gain easier access to credit through Lending Club’s platform. As a result, in the first quarter of 2015 alone, Lending Club originated more than $US9 billion worth of loans, more than double the amount of last year.
On the recruiting side, Laplanche says he’s getting access to even better talent now. Risk-averse engineers prefer working at a public company, especially since they can easily liquidate their stock options. But even people who like startups have been joining Lending Club because of its unique position in the financial industry, where it’s still considered a “disrupter” to massive incumbent banks. In the past quarter alone, more than 130 new employees have joined. “We’re still getting started, and there’s a lot more to come than what has come so far,” Laplanche says.
And big banks are taking notice too. In its annual shareholders letter last month, JPMorgan Chase CEO Jamie Dimon wrote, “There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking. The ones you read about most are in the lending business…And we also are completely comfortable with partnering where it makes sense.”
Lending Club’s main value proposition is in its software that can quickly vet borrowers’ creditworthiness at a fraction of the cost traditional banks take. Its online platform significantly drops the cost of finding and matching borrowers to investors, which is why more and more banks are showing interest in partnering with them. In fact, combining Lending Club’s low cost of operation to the low cost of capital for banks would be a win-win situation for both parties, Laplanche believes.
“The banks participating on the Lending Club platform delivers the optimum solution because we have the lowest cost of operations, while the banks have the lowest cost of capital,” he tells us. “The way we’re proposing to change the banking system is not in a competitive, or confrontational way with incumbents. We believe there’ll be more banks joining our marketplace.”