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Comment by OedipusRex | Hacker News Reader

Why all the recent IPOs?

1) Impending recession

2) Not enough IPOs so lots of investor interest to deploy capital into something( (thus driving up the price, making it more attractive for startups)

3) We're near the end of a 7~10 year cycle where lots of private VC capital was deployed and needs to be returned

4) 500 private investor maximum SEC rule

Could you elaborate a bit on the cycle part. Why is it a cycle at all assuming money gets invested all the time instead of once-a-x-years?

Not that dude but ~11 years ago was the recession so I'm guessing he's alluding to the fact that lots of investment money comes out of hibernation all at once when recessions begin to recede.

The best place to learn about this is to check out the memos Howard Marks has written over the years.

When a VC raises a fund, they usually try to return the money in 7~10 years after they start deploying the capital to startups. In other words, they want to exit their position no later than 10 years and usually shoot for 5~7.

Simplifying a lot, but...

VC companies themselves raise money from investors to create a fund, which is then used to invest in startups. Generally, funds are raised with a specific timeline pitch for returns to the investors - often 7-10 years. In order to return money to investors, the investments in the fund have to actually pay money back to the VC firm - the best way to do this is via IPO (although acquisition is also an option).

Due to overall market conditions, a glut of investment happened in the VC space 7-8 years ago (i.e. a bunch of funds were started), and those funds now need to get money back to the investors to prove a nice ROI, so there's a push to get the startups that were funded by the fund to exit one way or another.

>1) Impending recession

Eh I have heard this for the last 5 years

At least now there’s a bond yield inversion to give the prediction some substance.

Look, say what you want, but nearly everyone in the finance community (public equities, private equity, etc) knows this is coming. You're right, it's impossible to know when exactly, but there's hardly any doubt it's coming soonTM.

But everyone in the finance community has been saying that loudly since mid 2017 when we reached an 8 year bull market. As they say, economists have predicted 12 of the last 5 recessions.

Things are even more shaky now with the trade war and the fed. SP500 has been plateauing since April.

Wouldn't an impending recession be particularly impactful on their business? I mean, if I had to buy stock now with knowledge that an impending down market is guaranteed I don't think it would be in the hospitality industry, unless I overestimate how much that industry is influenced by recessions.

Late stage funding options are drying up big time. See Uber, Lyft, WeWork, and Softbank. These companies are still burning cash at high rates, so going to the public markets is the only option to raise that much capital.

This will most likely be a direct listing because Airbnb doesn't need to raise more capital. Its actually about employee liquidity for people waiting 10+ years.

You keep saying this, but you can’t possibly know it unless you have inside knowledge.

So either state your source or just say that you’re guessing.

The source is Airbnb themselves saying they have been EBITDA profitable for 2 years now - which is a very strong and verifiable claim for once they do go public.

https://techcrunch.com/2019/01/15/ahead-of-ipo-airbnb-achiev...

I believe the parent comment was regarding "Its actually about employee liquidity.. " part.

There have been articles since at least mid 2018 talking about how Airbnb doesn’t need additional money and how it was taking steps to prepare for going public before early employee equity grants expired in 2020. After they reworked how they gave employees equity that summer and promised to be IPO ready by mid 2019 to assuage employees, many publications ran articles about it.

Here is one article from this past summer which continues to emphasize the exact same points a year later: https://medium.com/swlh/why-airbnb-wont-go-public-in-2019-56...

Here are some excerpts from that article:

—————

Airbnb’s last funding round was in the first months of 2017, over two years ago. There is a straightforward explanation for that. Airbnb makes money. It is that rare thing; a profitable tech company. That means it doesn’t have to run to become public quite as eagerly as other companies. Its growth can be funded by the money it takes in itself.

...

Getting access to capital from a vast pool of investors is one of the main reasons companies go public. Supporting an IPO is a time consuming and expensive affair. Since Airbnb doesn’t need as much money for research and development or expanding its market, there is less incentive to IPO.

...

There is one excellent reason that Airbnb will go public in 2020, though. That’s when some shares promised to employees will expire — meaning they won’t be able to reap the financial rewards that come with growing a company.

Literally google “Airbnb direct listing” and you can see top analysts talking about it for years. Just like they said Spotify would do a direct listing and then they did. Just like they said Slack would do a direct listing and then they did.

Airbnb is actually profitable (at least EBITDA) unlike these other companies and hasn’t raised a major round in a while since they don’t need capital. This makes them a much better direct listing candidate than those previous companies.

It was widely reported they met with Morgan Stanley about a direct listing and Morgan Stanley is considered the expert in the field since they managed the last few.

How is Reuters for a source? If you prefer something else it has been covered by the vast majority of the financial press. https://www.reuters.com/article/us-airbnb-ipo/airbnb-plans-p...

“In a short statement posted on its website on Thursday, Airbnb did not give any details on how it plans to list its shares, although it is widely expected to take a direct-listing route.

A direct listing to go public is a process in which no new shares are created and helps companies save millions of dollars in underwriting fees.”

So why can’t I know what is widely reported to media by company insiders and has been for years?

One day later here is a huge NYTimes piece about how the employees were pushing hard for the public offering for years and it caused tensions: https://www.nytimes.com/2019/09/20/technology/airbnb-employe...

Airbnb was founded in 2008. My take is investors want to cash out before the upcoming recession.

Recession?

There are a non-trivial number of signs of a recession coming up this winter/2020. E.g. https://www.cnbc.com/2019/09/02/heres-a-list-of-recession-si...

If everyone thinks there's going to be a recession, wouldn't that mean that would be priced into the IPO price? ie. if you think that there's going to be a recession in 3 months, you wouldn't plow a boatload of money into an IPO.

High information investors and executives know an impending recession is probable, but low information investors will still happily plow money into IPOs.

Predicting the exact timing of a recession is very hard to do. You can say there are troubling signs but I would be extremely skeptical of somebody telling me "Winter/2020" with a high degree of confidence. Meanwhile, there have been people pointing out troubling signs for several years now, and if you acted on their advice you'd have lost money, but nobody could have told you that for sure at the time, either.

The current SPY Puts for 240 expiring Dec 2021 are $12.30. How many did you buy?

Nobody said this was an IPO. Most likely a direct listing since Airbnb doesn't need to raise capital.

A direct listing is definitely not the most likely option. Only two major tech companies have done direct listings and there are also a lot more reasons you would want to do an IPO instead of a direct listing

1) Neither SPOT or WORK has done great, especially WORK

2) IPO allows you to choose your investors. This gives you the opportunity to choose major institutional investors that are in for the long term which will help reduce stock volatility.

3) Even if you don't need money, raising billions can open up a lot of opportunities for the business and give you a warchest to derisk potential market downturns.

A direct listing is definitely the most likely option which is why they didn’t call it an IPO anywhere. They already have huge numbers of institutional and strategic investors. I’m not sure who you think they are waiting to get investment from. Crunchbase lists 53 investors including YC, Sequoia, Andreesen Horowitz, Greylock, Founder’s Fund, CapitalG, and TCV. They turned down SoftBank funding. Their shares have been owned by mutual funds from Vanguard, Fidelity, Morgan Stanley, Principal, T. Rowe Price, and Hartford for at least five years. They’ve already raised the warchest that you’re talking about.

Spotify and Slack had fine initial listings, but they are both losing tons of money so the market reacted negatively as their quarterly earnings made this more and more clear. Not a great comparison to a company that has been printing money and hasn’t raised a serious round in years.

Here is an article from Reuters today that emphasizes that most people expect a direct listing:

https://www.reuters.com/article/us-airbnb-ipo/airbnb-plans-p...

“In a short statement posted on its website on Thursday, Airbnb did not give any details on how it plans to list its shares, although it is widely expected to take a direct-listing route.”

Get out while the going is good.

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