Visa Inc. went public this spring through the consolidation of several banks that formed the organization. Their IPO raised a record-setting and jaw-dropping $17.9 billion. But it doesn’t appear that web 2.0 startups are in a fruitful position in the current market. In fact, in looks as though those of you thinking about trying to raise money through an IPO for your tech startup should reconsider your options completely.
Paul Graham, the founder of Y Combinator, should know a thing or two about web startups. Graham sold his startup, Viaweb, to Yahoo for stock valued at nearly $50 million, where the product became the Yahoo! Store. Since then, Graham has started startup funding firm, offering roughly $5000 plus $5000 per founder for 2-10% of the company’s shares. Y Combinator has funded 80 startups to date, having two rounds of funding each year, including, amongst others, reddit.
What’s interesting about Paul Graham isn’t so much the money he has to throw around, but rather the foundation of his ideas and principals that contribute to his company and blog. Graham made an interesting point a few months ago about innovation and startups. He states that venture capitalists are far from the daring, risk-taking, bold innovators that we make them out to be, but are rather extremely conservative and are looking for stable ideas more than innovation.
This past week the markets saw another IPO, this time a tech company we may have all heard of: Rackspace. Having received venture capital money from two different firms, it appears as though it was time for Rackspace to go public. Unfortunately for the investors that collectively purchased $187.5 million of Rackspace’s stock, RAX dropped 20% on its first day of trading. While climbing slightly today, the stock still remains below their IPO point of $12.50.
This IPO occurred in a bit of a public offering drought. The only other tech company with venture capital money to go public this year was ArcSight, who IPO’ed this past Valentine’s Day. Last year, on the other hand, 48 venture-backed tech companies decided to go public. The National Venture Capital Association even declared the tech startup industry to be in a crisis due to the lack of public offerings. In fact, the second quarter of 2008 marks the first quarter drought since 1978.
It should also be noted that 59 companies have posted for public offerings only to change their decision later, as compared with only 14 companies doing the same at this last year. These figures indicate that many more companies are fishing for funding, but would much rather not go public.
All in all, those of you who are working on aspiring new startups may wish to consider an alternate route than venture capital funding or public offerings. See if you can get funding from sources that won’t push you into going public, and hold onto your assets until you get an offer from a larger company that is worth it. Selling out on the stock market does not appear to be the right way to go at the moment – especially if pushed by VCs who just want to get out.
Share With Others
(1 votes, average: 5 out of 5)
Loading ...
Leave a Reply