Going public used to be all the rage – an IPO was a sign that your brand had made it, and that the masses loved you (and your product) enough to invest in you. American fortunes were made in the stock market, after all. But, alas, those were simpler times – times before the advent of high frequency trading, times before quantitative easing.
At the end of the day it’s important to remember that going public does two things for the company: 1) it raises capital, and 2) it gives the founders a publicly acceptable exit for their shares. The question becomes whether or not the benefits of raising capital and exiting your holdings are worth the price that comes along with public scrutiny.
In LinkedIn’s case, at first glance the answer was, apparently, certainly not. And it’s easy to understand why someone would make that argument – expectations from market participants have grown ridiculous as the company’s price dropped after 34% increase in fourth quarter earnings. Other have followed suit in recent years.
Looking at it though, there could be some real benefits to structuring your business in a Regulation D/small business loan/Debt (convertible or otherwise) market, then taking it public to wash those investors, then taking it private again after you’ve raised the capital you need and build out a larger following/reputation. Because going private does just that – it’s the best brand awareness campaign a company can buy, only they’re taking capital while they’re doing. It’s phenomenally public.
Looking at LinkedIn, the company grew their revenue some 400MM post IPO announcement, whereas the two years prior had revenues sitting sub 400MM. While the growth was steady and continuous, it was arguably improbable to break a 200MM/300MM ceiling without the notoriety of mass marketing/public acceptance which either occurs with an IPO, or though some other phenomenally expensive branding channel.
Was it on purpose? Almost-most-definitely not.
Was it beneficially? Almost-most-certainly yes.
Is there a real opportunity for companies to capitalize on this kind of thing in the future? Absolutely. We expect to see a growing industry of private -> public -> private.
Though, it will also be interesting whether, with the passing of Title III of the JOBS Act of 2009 (Crowdfunding), companies will have all of the tools they need to gain notariety among the public without enduring the cost of going public. While the answer is almost certainly no, it’s worthy of exploring the idea.
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