As IPOs Pick Up, Big Startups Hold Out | Hacker News Reader

As IPOs Pick Up, Big Startups Hold Out

wsj.com

70 pointsprostoalex23 comments

I am a big fan of Matt Levine's recurring theme: "Private Markets are the new Public Markets" - https://www.bloomberg.com/view/contributors/ARbTQlRLRjE/matt... - many of his "people are worried about Unicorns" sections address this.

The core of his argument is that public markets come with regulations, which discourage IPOs, and that as long as investors are tolerant of companies staying private, they will. So, in this market (generally up over the last few years), people aren't worried about cashing out, so they let private companies stay private, and reap more of the theoretical rewards.

At some point these investors need to turn their theoretical rewards into real ones. At smaller valuations they could pass the bag onto the bigger, public, tech companies. The only path forward now is via the public markets.

Do they? I have less than zero idea of what getting LP funding is like, but it may work out better for them. As long the unicorn hasn't IPO'd yet, it's not a failure. Once it's IPO'd it is what it is, and if it's bad it's bad. Bad returns + high potential may be an easier sell to a pension fund or family office than what the actual numbers will be.

The problem with that approach is that VC valuations are almost entirely predicated upon hype and future performance, way more so than the public markets. So more VC funding = higher valuations that the Unicorn then needs to meet in the public markets. If they can't match private valuations, alot of people get wiped out; first and foremost the employees and founders.

So it's like a game of brinkmanship until something breaks.

>> The only path forward now is via the public markets.

Is that because profitability is not an option?

Couldn't a private company just pay its investors excess profit?

Let's just say Google never went public and they have the profits they do today. Couldn't they share this with investors?

Disclaimer: I'm not very knowledgeable about how businesses function in these areas.

I'll probably get some flack for saying this on this community, but after working for a unicorn, I understand this:

"Reflecting broader concerns about whether they can match the rich valuations offered by private investors."

It feels like a Ponzi scheme. I haven't called the end yet, but I finally feel like the end is near.

Two primary reasons companies go public 1) cash out and 2) raise capital. I don't think Air BNB or Uber need money currently and I suspect they don't want the additional scrutiny/headaches an IPO brings to their businesses yet.

Maybe they don't want the scrutiny, sure, but do seem to need funds.

Airbnb last raised money through equity in March:

https://www.crunchbase.com/organization/airbnb/funding-round...

Uber last raised money through equity last June

https://www.crunchbase.com/organization/uber/funding-rounds

(but has taken on other financing since then).

It's going to be interesting to see how long private markets can maintain irrational bubbles hidden away from transparency.

I think a lot of people are "rich on paper" and scared to know exactly what that means.

As a corollary to this, I've recently seen private secondary markets boom quite rapidly. There's probably a huge opportunity there.

Private Secondary markets are a huge opportunity.

I'm not sure the lack of transparency is a big issue, except for employees. The VCs generally know what's going on, if not the mutual funds that get in late.

What generally corrects markets quicker is the ability to short. When you can't short (or make a bet that something will go down) then it's only the optimists who are setting the price.

Yeah, very fair point on this. Are private secondary markets just by default eternal bull markets? What's the price correction mechanism? Devaluation due to massive supply/demand imbalances?

Interesting space to get involved in, for sure.

If the market is small enough and there isn't leverage, you can have long term price dislocations. (Example: penny stocks) If the purchases are funded by borrowing, then eventually the debt payment come due and force corrections.

With all the bad PR Uber has gotten lately it makes sense that they may wait longer but I'm surprised AirBnB hasn't already gone public.

I am a big AirBnB fan, but I think that Uber is imploding. If Uber imploded while AirBnB was public it would drag AirBnB down as well.

Do you think the whole of the tech industries success is linked to Ubers?

There is a lot of skepticism in the 'sharing economy' and Uber is the de facto representative of the model. Any negativity they suffer will likely affect other companies that use the model.

To some extent, yes. How much money a company can raise in an IPO is partially a function of how optimistic investors are feeling about its entire sector. If Uber-- the much-hyped mega-unicorn-- turns out to be a dud, that's going to weigh on everyone's opinion of other tech unicorns, whether it makes sense or not.

If Uber implodes there will be a lot of talk in the media about how VC money padded their unit economics.

I thinks this will make people start questioning the viability of all sorts of other "too good to be true" startups. This includes all the sharing economies, but also non-sharing startups like Blue Apron.

This in turn will cause a bit of a vacuum for funding B2C startups. We're already starting to see this in some areas, like food delivery. It may grow to cover all consumer-based startups, rightly or not.

I doubt it. They're both two very different companies. Uber's business model is to undercut unhandesomely paid taxi drivers with slightly less paid contract drivers. Whereas airbnb undercuts multimillion dollar hotel chains.

The crucial difference is that an uber driver can only earn money when driving passengers for uber. Airbnb hosts, by contrast, can earn money without having to be anywhere near the unit, and can make money from multiple sources at a time.

At the end of the day, the feeling that someone is getting ripped off somewhere, somehow, is much less with airbnb than uber.

Supposedly the people getting ripped off by AirBnB are the neighbors of the hosts.

I'm pretty impressed at the way cloudera has handled their "downround IPO" by telling their half truth half BS "Intel strategic investment shouldn't count" story.

The market seems to be alright with it.

Pretty bad for latecomer employees though =\

https://airbnb.myshopify.com/products/belo-keyring

Reply on news.ycombinator.com