

For High Tech Companies, Going Public Sucks - qdie
http://www.wired.com/epicenter/2012/03/ff_facebookipo/

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Agathos
The increasing emphasis on the short term prospects of a publicly traded
company is a problem. But is there anything here that's specific to software
and web-focused companies? Others have been writing about this for years. John
Bogle for example has argued that the increasing concentration of shares in a
handful of pensions and mutual funds prevents the company's owners from acting
like long-term owners.

~~~
drostie
There is something slightly more specific, which is that we have some
technology-related _gris-gris_ [1]. The basic problem is that everyone feels
more or less qualified to guide a company's technological progress. One very
chilling story which exemplifies this comes from about 7-8 minutes into a
Clojure talk:

    
    
        But really what this is is, "I'm afraid. Because I don't want to choose 
        something that might put my job at risk, and so I will easily pick 
        something that is less effective but more industry-accepted, rather than 
        something riskier where I might risk really good success but also 
        failure." ... I was literally in a meeting at one point with a CTO and 
        he said, "We believe that the only way this project will ever be a 
        success is if we pick Delphi, but we're picking PowerBuilder." Knowing 
        that it's going to fail, but that's the safer choice politically because 
        if they pick Delphi, they might win, but they might lose and if they 
        lose and they picked something weird then they get fired.
    

So if you're a tech company and you go public, right, the salient fact is that
your company is no longer self-valuing, but its value is being set by an
(extremely meta) popularity contest: I think that this news will make others
value you less, so I immediately sell a little cheaper than I think it's
valued, thus driving the price down, and so forth. Normally you would say "who
cares what someone says my value is?" but unfortunately the people who are
playing this game ultimately _own the company_ , so it matters by fiat. They
can and perhaps will fire people who don't make that stock price go up.

The _gris-gris_ enter in just about here. Some are owned by the market as a
whole, and your owners will be anticipating them and responding to them. But
the more dangerous _gris-gris_ will belong to your owners themselves, I
suspect -- "You used Lisp? What the hell is that? You're fired."

So that's where I would focus the discussion. Random people on the stock
market probably have just enough technical knowledge to think that they know
much more than they know. That puts them in a dangerous position when they own
your company. If Zuckerberg is careful to keep more than 50% of his company
while going public and in doing so releases an open document saying
essentially "Facebook is about hackers," I would understand him as trying to
violate some taboo on the open market (where "hacker" is a bad word) as well
as trying to make sure that people can never muscle out the hacker approach
that, in his view, probably makes Facebook exactly what it is. He doesn't want
the Ownership to start pressuring the Developers with technological
misunderstandings.

[1] A _gris-gris_ (gree-gree) is a voodoo talisman. The key feature here is
that it is unquestionably believed to work.

[2] Excerpted from [https://blip.tv/clojure/neal-ford-neal-s-master-plan-for-
clo...](https://blip.tv/clojure/neal-ford-neal-s-master-plan-for-clojure-
enterprise-mindshare-domination-5953926)

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astrofinch
>That may sound like suicide, but a recent study showed that most fast-growing
US companies take no venture funding at all.

Where can I read it? This sounds like a better story than the article itself.

There should be a rule that journalists have to cite the studies they cite...

------
dpcheng2003
IPOs will continue to remain the preferred liquidity event until there is a
better vehicle for fast-growing companies, particularly those who are growing
fast but are not throwing off cash.

The spirit of going public has always been better liquidity, more
transparency, and access to cheaper capital. That spirit hasn't changed so
much as been polluted a bit by SarBox and short-sighted board members and
investors. The solution isn't to stop going public; it's to fix SarBox and
choose your board more wisely.

------
guimarin
For me the state of 'liquidity' events is a biproduct of our unsustainable
consumption culture. Until people start 'thinking differently' about the type
of people, and the type of world they want to be/create, we will continue to
see liquidity events of this type.

IMO it became obvious after 2000 that the company cycle ( birth, growth,
plataeu, decline, death ) for internet companies is much faster than the
regulatory/financial cycle. For traditional 'technology' companies it still
makes sense. You could see a hardware company do the whole cycle. But I don't
think it works for internet companies. And it fundamentally destroys them, a
la Yahoo and now Google.

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nchuhoai
On that side note, does anyone know what ever happened to Goldman Sach's
special vehicle for outside Facebook investments? I.e what stops companies
from setting up their own vehicles for the stock options of their employee's
to avoid the 500 rule?

~~~
bri3d
Goldman only sold their Facebook shares to non-US clients, because in the US,
the deal would violate other rules regarding the privacy of private offerings
(essentially too many people knew that Goldman were offering Facebook shares
and the offer ceased to be "private" enough for the SEC).

[http://online.wsj.com/article/SB1000142405274870339660457608...](http://online.wsj.com/article/SB10001424052748703396604576087941210274036.html)

------
akkartik
_"Look at it this way: When Apple went public in 1980, it had 54.2 million
shares outstanding. It has since split three times, so those original 54.2
million shares have now become 434 million shares. But in fact, Apple
currently has 929 million shares outstanding. Many of the extra 495 million
shares—worth well over $200 billion, at current valuations—were issued over
the years to pay for companies or people. And Apple isn’t even particularly
acquisitive. All that equity has no value if there isn’t some way to convert
it into cash eventually."_

Surely AAPL with fewer shares would be worth a lot more per share. Markets pay
keen attention to P/E.

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veyron
Why doesn't anyone mention the private option? Multi-Billion dollar operations
like Koch Industries are private. You aren't forced to go public per se.

~~~
eli
Did you read that article? Facebook more-or-less was forced to go public.

~~~
veyron
For posterity's sake let's make this clear: the SEC rule regarding 500 owners
is as follows:

> Companies with more than $10 million in assets whose securities are held by
> more than 500 owners must file annual and other periodic reports. These
> reports are available to the public through the SEC's EDGAR database.

Source: Securities Act of 1934, paraphrased in
<http://www.sec.gov/about/laws.shtml>

It requires firms to file special reports. The reason why people presume that
it means that the firm must go public is simple: there are only a few
additional requirements to go public, and the economic advantages in many
cases outweigh the paltry effort.

For posterity's sake, this is worth repeating: THERE IS NOTHING FORCING A FIRM
TO GO PUBLIC. NOTHING.

~~~
eli
Right, besides the fact that they no longer have much to lose.

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lani
a million people who weren't smart enough to invent in the first place require
that the few who DO invent, to do it in a way they understand and approve.
where's the sense in that ? Asking high tech companies to 'drive' the economy
as though they were bus drivers is like asking aviator-adventurists to fly
passengers london-to-calais while filing daily status reports.

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rmk
But what about the pension funds etc. that finance seniors' retirements? There
should be some way for them to get in on the action, otherwise seniors might
end up putting even more strain on the social safety net. If pension funds
were able to participate, then it would be a good thing. Does the model
suggested in this article support such an investor?

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nchuhoai
Liked the post a lot, there are a lot of things wrong with the investing and
valuations frenzy these days. Personally, I was wondering whether a hybrid
model is possible: while I do wanna grow organically from the profits of my
company, I'm likely to need some initial funding usually in the seed range

~~~
danielharan
I've heard of some angels accepting deals where they'd eventually get
dividends.

~~~
veyron
I hope they are real dividends and not the 100M dividend associated with the
BATS ipo ... (paid out the day before it tried to go public)

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ojbyrne
I think Apple's performance in recent years must give some ammunition to execs
who favor long-term goals over short-term goals. In addition Google has
demonstrated that two-tier type stock voting schemes (like the one Facebook is
going to use) can ameliorate many of the issues described.

