Every new day seems to bring fresh news about Internet companies mulling, planning, or avoiding initial public offerings. Facebook, LinkedIn, Groupon, and now Zynga—the list goes on. “For many of these companies, an IPO seems more like a bar mitzvah,” an anonymous social media investor told the New York Times, in today's piece about how Zynga is in no hurry to go public. “It’s not very life-altering in the end, but rather something to get through.”
What are the varying IPO strategies of each of these companies? When is an IPO a simple rite of passage, and when is it something more? Is an IPO really like a bar mitzvah? An investigation.
The largest IPO-related news of the last week has come from Facebook. As the privately held company has grown and become more profitable, a shadow network of trading in its stock has sprung up, prompting investigation by the SEC. (If a company is deemed to have more than 499 shareholders, it must go public). With last week's news of Goldman Sachs's $450 million investment in the company, analysts have said the company is on its way to a Goldman-managed IPO.
In the past, Facebook CEO Mark Zuckerberg has indicated no eagerness to go public, once saying, "Don't hold your breath." An IPO brings an onslaught of cash, with accompanying financial freedom—but it also brings all manner of public scrutiny. The Goldman Sachs investment has been a double-edged sword; on the one hand, it has given Facebook a massive infusion of money, while allowing it to remain private. On the other, the investment in itself has brought further scrutiny into the company's financials (and leaked Goldman documents have unveiled new details, for instance, that Facebook appears to have a 30% profit margin), virtually assuring an IPO.
For Facebook, its impending IPO—coming in 2012, most likely—has indeed been something like a bar mitzvah—awkward, tentative steps into adulthood. Zuckerberg may be torn between clinging to the company's adolescent vibe, while wanting the respectability that comes with a Goldman Sachs-backed public offering. Adulthood wins out in the end: After all, no longer do Zuck's business cards read, "I'm CEO...bitch."
LinkedIn has swooped in as the first likely major Internet company IPO of 2011. it might seem surprising that LinkedIn would forge ahead of Facebook, which is so much larger and more heavily trafficked. But LinkedIn, as a social network for professionals, has always had something of an avuncular vibe to the younger-seeming Facebook, so it makes a certain amount of sense that it might hit this milestone sooner. “For us, first and foremost, it’s about our mission, which is to connect the world’s professionals,” CEO Jeff Weiner told Bloomberg in August. “An IPO, being public, raising money, that’s really a tactic that helps us ultimately achieve that long term objective.”
For LinkedIn, did the rumblings of Facebook's Goldman Sachs investment prompt its own decision about an IPO? LinkedIn denied it to the Wall Street Journal last week, saying the decision about its own IPO had come in the fourth quarter of 2010, before the Facebook news. "Anybody who is suggesting timing is a function of Facebook misses the point completely," said one of those fabled "persons familiar with the matter," adding, "This has been in the works for months." If LinkedIn is a bar mitzvah boy, it's the one who has studied Torah eagerly and calmly throughout the seventh grade.
But the fact that LinkedIn will soon become a man among boys hasn't led to a buttoned-up culture around the office, according to reports. Weiner recently instituted a "high-five zone" in front of his office. "Anyone who walks through the square, which is nearly impossible to avoid, must give a high five to others nearby, a sign declares," according to Venture Capital Dispatch.
Groupon had a chance to take a different route. In November, Google (itself a company that famously went through IPO growing pains) made a reported offer for the company for $6 billion. As soon as Groupon walked away from the deal, an IPO seemed likely, many outlets reported.
By the end of December, Groupon had attracted many big institutional investors, and was "preparing to go public as soon as 2011," reported the Times. The company also hired a chief financial officer, Jason Child, who had previously overseen finances at Amazon.com.
Like Facebook, Groupon's recent inflow of investment dollars at once helps the company remain private for a while, while also indicating an impending IPO. Paul Bard, and IPO analyst at Renaissance Capital, recently told MarketWatch that he thought Facebook and Groupon were on similar timetables, with Groupon likely to go public first.
Groupon's strategy is somewhat hard to read here; walking away from a $6 billion deal is enough to make anyone scratch their heads. Only time will tell whether Groupon made the right decision, refusing to sell itself short, or whether it lost a major opportunity.
Zynga, the makers of popular social games FarmVille and CityVille, made headlines yesterday simply for indicating that an IPO was not likely this year. Zynga's founder and chief executive Mark Pincus has spoken in no uncertain terms about his skepticism of outside investors, and his desire to keep his hand on the wheel. "It was really important to me to keep control of the company," he said at TechCrunch Disrupt in San Francisco in September. "If you want to build a house you're gonna live in," he said, "you need to have total control, or you have death by a thousand compromises." He added to his audience of tech entrepreneurs: "I would argue we should take half the valuation, if we can keep control of our companies."
Pincus is like the bar mitzvah boy who is skeptical that you can wake up a boy one day, a man the next. He urges companies to invest in themselves, reaching adulthood gradually, and on their own terms.
Though Zynga is in no rush to go public, it has indeed welcomed some investors, inevitably. According to the Times, it's gotten $360 million in funding rounds from various sources, including DST Global, the Russian firm that has invested extensively in Facebook.
While Zynga is growing fast—300 million active users, with four of the five most popular social games—it is still undergoing growing pains. For one thing, it's heavily dependent on Facebook; almost three-quarters of its business is funneled through the social network. Zynga is working toward bringing its games to other platforms: Yahoo, the iPhone, the iPad. But as recently as September, Pincus had to admit that he didn't see his company as an indispensable part of the Internet landscape: "I think people can still imagine life without playing our games," he said at TechCrunch Disrupt. In October, he told Fast Company that he wanted to build "an Internet treasure."
Like Facebook, LinkedIn, and Groupon before it, Zynga is likely to find that it has to go public eventually, if it wants to get some of that bar mitzvah gilt.
[Image: Flickr user trippchicago]