IRVINE, CA, Sept. 19, 2013 (GLOBE NEWSWIRE) -- All eyes are on Twitter. Since the popular tech company announced in a tweet on Thursday, September 12 that it had filed for an initial public offering of its stock, many experts have analyzed, weighed, and cited the evidence, speculating about the implications, ramifications, and ultimate outcome of the popular social media platform's latest business maneuver. And many others are sure to weigh in as the plan moves forward -- including Sqeeqee.com CEO Jenny Q. Ta. But, first, a little background.
Twitter's Announcement: The Tweet Heard 'Round the Business World
The historic tweet [https://twitter.com/twitter/status/378261932148416512] announcing Twitter's IPO plans stated simply, "We've confidentially submitted an S-1 to the SEC for a planned IPO," then added the disclaimer, "This tweet does not constitute an offer of any securities for sale." While not revealing any details about its financials -- due to a new law that lets companies with less than $1 billion in annual revenues hold off on making such crucial economic data public -- the company is ready to move forward, just as its larger web-industry predecessors Facebook and Google have done. The announcement has inspired much speculation about what, exactly, this development will mean, not only for Twitter, but for other startups as well. And this is a question Jenny Q. Ta has been pondering, as CEO of a startup that is poised on the cutting edge of the social tech industry, with its integrated social media platform that empowers businesses and private individuals to centralize -- and monetize -- all their online interactions.
Twitter vs. Facebook: A Potentially Valuable Comparison
Despite its much lower price tag than that of the Facebook behemoth that has monopolized social -- at a comparatively small $10 billion to Facebook's $100 billion valuation during its own IPO in 2012 -- everybody's favorite microblogging site nevertheless has at least two characteristics in common with Facebook: First, both companies' CEOs were cautious enough to wait seven years or longer after their founding to go public. (Facebook waited eight years and Twitter seven.) Second, both resisted the temptation to allow their companies to be acquired by larger, more-powerful corporations. Were their decisions to go public strategically decided? Were they wise? Will they ultimately prove successful? And perhaps most importantly, can they contribute to the construction of some type of road map that other startups can follow in setting a course toward determining their own economic futures?
Facebook: Overvalued?
According to Bloomberg, at $100 billion, Facebook's May 17, 2012 initial public offering was "the biggest technology IPO in history." Yet, many investors and analysts felt Facebook was overvalued at a $100 billion price tag. In a May, 2012 Bloomberg poll [http://www.bloomberg.com/news/2012-05-11/facebook-ipo-overvalued-at-96-billion-in-global-investors-poll.html], run the week before the planned IPO, 79 percent of the 1,253 global investors, analysts, and traders surveyed felt that the anticipated $96 billion valuation was too high for Facebook.
Facebook's first year of trading was a rocky one, to be sure, a fact which appeared to indicate that the wary analysts and investors may have been right. Yet, the fact remains that, after falling to less than 50 percent of its initial offering price of $38 per share last year when the company apprised stockholders of some monetizing issues the site was facing, the FB stock rallied and, in fact, according to a September, 12, 2013 piece on Bloomberg.com [http://www.bloomberg.com/news/2013-09-11/facebook-shares-reach-all-time-high.html], "climbed to an all-time high (of $45.48) as investors bet the company [would] benefit from growing demand for its mobile advertising products."
There's little question that mistakes were made in the early days of Facebook's IPO, but the company has squarely faced its problems, using innovation to pull itself up by its bootstraps and raising its stock price higher and faster than many analysts predicted. In fact, some experts believe it was this very adversity that made Facebook stronger [http://mashable.com/2013/05/18/facebook-ipo-anniversary-2/].
Could Twitter Have Done Better?
Jenny Ta questions whether Twitter might potentially have seen a higher valuation if the company had done things differently at the beginning. "There were articles written several years back that Twitter got off to a slow start because they weren't sure how to generate revenue through advertisements with the platform they had initially. Could this innovation 'error' have prevented Twitter from having a much higher IPO valuation than just $10 billion?"
While this may certainly be true, today the company seems to have learned its lesson and is apparently leading the pack (read Facebook and Google) in mobile growth -- an area that's ripe for innovation. In fact, a recent Bloomberg piece [http://www.bloomberg.com/news/2013-09-16/twitter-outshines-facebook-with-earlier-focus-on-mobile.html] predicts, "That Twitter has already built up a mobile-ad business may put it on firmer investor footing than when Facebook went public in May 2012 in the biggest technology IPO."
Several Companies that Chose a Different Route
Unlike Facebook, Google, and Twitter, several companies have relied on mergers or acquisitions rather than IPOs to solve their monetary issues. Instagram, Yammer, and Waze were all acquired by larger companies during the last two years. Facebook acquired mobile photo-sharing app Instagram [http://techcrunch.com/2012/04/09/facebook-to-acquire-instagram-for-1-billion/], which was launched October 6, 2010, on April 9, 2012, during the startup's second year, for $1 billion in cash and stock. A few months later, on July 19, 2012, enterprise social network Yammer was acquired by Microsoft [http://techcrunch.com/2012/07/19/microsoft-completes-its-1-2b-yammer-acquisition/] for $1.2 billion four years after the company's 2008 launch, after which it had raised $142 million in venture funding. More recently, in June, 2013, Google acquired mapping app Waze [http://news.cnet.com/8301-1023_3-57595620-93/google-reveals-it-spent-$966-million-in-waze-acquisition/] after five years for $966 million (though the price of this deal was originally believed to be $1.1 billion and the acquisition has recently come under scrutiny by the Federal Trade Commission in the U.S. and the Office of Fair Trading in the U.K.)
To "IPO" or Not to "IPO"
As Sqeeqee.com CEO Jenny Q. Ta sees it, the real question the recent news and analysis on the Twitter IPO raises is "Should startup CEOs be more patient and wait it out until they're ready for an IPO, as Twitter and Facebook did in year seven and eight, or should younger companies such as Sqeeqee.com allow themselves to be acquired for a much lower valuation, as Instagram, Yammer, and Waze did, after two, four, or five years?" It's a complex question, but nonetheless one that various experts have weighed in on.
Back in early 2011, Fortune predicted, in "Why startups don't go public anymore" [http://tech.fortune.cnn.com/2011/03/17/why-startups-dont-go-public-anymore/], that at-the-time-still-private companies like Facebook, Twitter, and Groupon -- which it referred to as "the hottest web startups" -- would eventually go public, but that "they (were) taking their sweet time about it." Groupon ended up going public in November of that same year, just three years after its launch, while Facebook and Twitter held out until 2012 and 2013, respectively. The above piece also referred to such companies' battle to raise venture capital in order to stay under private control as "Silicon Valley's version of prolonged adolescence" -- a fascinating assessment.
A Graphic Illustration of the Current IPO-to-M&A Trend
A 2012 Inc.com infographic illustrates "Why Fewer Start-ups Are Going Public" [http://www.inc.com/welcome.html?destination=http://www.inc.com/maeghan-ouimet/startup-ipos-still-pay-to-go-public.html], indicating that "IPOs are down across the board, but the drop is especially pronounced among small companies (revenue of less than $50 million)." This revealing infographic also shows that, while the average age for tech companies that went public from 1998 to 2000 was three years, that gap widened to seven years from 2010 to 2012. Average time between registering and first day of trading also nearly doubled, from 78 days to 154 days, during the same two time periods.
Perhaps even more eye-opening is one infographic stat that indicates that the percentage of smaller companies that were unprofitable three years after going public rose from 58 percent between 1980 and 2000 to 73 percent between 2001 and 2009. In comparison, only 24 percent of large companies were unprofitable three years "post-IPO" between 2001 and 2009. The Inc.com infographic further indicates that the trend for smaller companies is moving toward "venture-backed M&A exits -- and for good reason: The average M&A deal price is the highest it's been since 2007," at $142 million.
IPO Advice for Startups from Sqeeqee.com's CEO
Jenny Q. Ta offers the following advice for startup CEOs who are considering going public: "If your company is competitive, shows consistent growth, offers a popular product or service, and features experienced leadership, a top-notch team, and a solid business plan, an IPO may be the way to go when business growth outpaces your ability to raise sufficient capital. You should be aware, though, that an IPO places requirements on you that you would not be subject to as a private company. So, get good financial advice that will help you make the best decision for your business. And if you do decide to wait it out and go with an IPO rather than going the M&A route early on, make sure the time and market conditions are right."
While it's still a little early to tell exactly what will happen with Twitter's IPO, it would appear that a merger or acquisition could turn out to be the safest bet for many smaller tech startups, while holding out in anticipation of a well-timed IPO might prove the most profitable strategy for larger, more stable, firms.
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