Do profits matter for Tech IPOs? Maybe not

craft.co

17 pointsemaercklein2 comments

Companies go public to raise capital. But it'd only make sense if they are generating enough earnings so that investors are not losing their money. For example, in the case of Snapchat, it'd probably be better off if they raise another few more rounds of funding from venture capital and figure out a profitable business model. Otherwise, who wants shares of a company that only takes but do not give?

From Snapchat's perspective, they should think about where they'll be able to find the cheapest capital to continue to fund their operations and where they'll get the highest valuation for a liquidity event. For both of these, going public seems like a good decision.

For investors, whether public or private, they should be concerned about companies that seem likely to only take and never give (the hope is that they'll eventually give). By this stage of funding, companies like Snap, Facebook, and Uber were getting some money from big institutions who would also likely be major holders in the IPO, so the gap of who would be potential investors by raising in public vs. private markets was shrinking.

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