Why Facebook and Twitter Should Delay Their IPOs
Every time a Facebook or Twitter executive burps within earshot of the media, the question of a public offering seems to emerge.
On a conference call in May, Facebook CEO Mark Zuckerberg threw a wet blanket on a near-term IPO, saying, "It's something we'll do when we're ready for it. It's something we don't see on the immediate horizon." Good for him.
However, at a recent event at Oxford University, Twitter cofounder Biz Stone seemed open to the idea: "The point is, we want to build our own company that will last for a long time. If an IPO's the way to do that, then sure. We don't have it checked off on the calendar yet." Tweet that.
I guess a lot of folks long for tech's bubble days, when "concept IPOs" raised $100 million and investors got rich and poor in the same tax year. Not me.
Sure, there are significant benefits to going public, primarily as a source of capital and currency for acquisitions. That said, there are a lot of reasons to avoid it as long as a company can:
- The Sarbanes Oxley tax. There's nothing like a few dozen accountants, lawyers and SOX consultants running up multimillion dollar bills so a couple of senators can feel good about themselves post-Enron.
- SEC and investor scrutiny. Well, there's the S-1 prospectus followed by the Def-14a proxy statements, 10-Q quarterly reports, 10-K annual reports, 8-Ks, 4s, 3s, it's a nightmare for everyone -- except the lawyers. Not to mention all the Wall Street banking analysis and a few thousand investors breathing down your neck.
- Management team distraction. Nothing distracts a young and inexperienced management team - that should be doing other things like figuring out how to make money - like all the scrutiny, transparency, and expectations.
Bottom line: the public markets are no place for a young company that's trying to figure out its business model. Google's IPO was successful because its business model was set and minting cash like nobody's business. Facebook's on its way, but Twitter hasn't made a dime yet.
Mark, Biz, Evan Williams (Twitter CEO), a word to the wise, if I may: Guys, wait as long as you can, until you can't stand being poor and having to beg for cash any longer. I guarantee, it'll be worth the wait.