In the old days – you know, the dotcom bubble, when I was first growing up professionally – you had to wait until your company went public to cash out and make a bundle. Well, unless you were me … then you were saddled with unvested options when the needle pierced it, allowing your hopes of wealth (and plenty of hot air) to disappear. Either way, the rush to go public was palpable back then. Today, it’s different. The dotcom boom is a decade in the past, and a new wave of internet companies is showing a vastly different philosophy … deferring an IPO but not the realization of monetary dreams.
Facebook is the big one, of course. It’s staring down an implied valuation of $65 billion thanks to a bevy of private transactions, the most recent of which involves employees’ shares. LinkedIn, which turned profitable last year, has just announced its intentions to go public (Facebook will likely wait until sometime in 2012). Twitter, meanwhile, has come out and said it has no plans to enter public capital markets.
In an exclusive interview with Reuters, Twitter co-founder Biz Stone said that Twitter is doing its best, effectively, to keep ownership in the family. He claimed that rumors of a JPMorgan Chase play to pick up 10 percent of the company – for $450 million – were “made up” and that Twitter has no plans to go public. Rather, Reuters reports, the social media company will remain “independent”.
Stone said to Reuters, “We make money,” adding, “We are just really getting started.”
This much may be true, if you take the data of industry research firm eMarketer, which puts Twitter‘s ad revenue at around $45 million for last year and forecasts $150 million in 2011 (Twitter doesn’t release this information). There is, I suspect (based on some dated back-of-the-napkin calculations) an eight-figure revenue stream from data licensing via the “firehose”. But, even the 2011 top-line number makes an implied valuation of as high as $10 billion a stretch for the microblogging service.
With around 200 million users, Twitter has twice the membership of LinkedIn and a third the population of Facebook … which is nonetheless a substantial presence on the web. And, it seems poised to generate some serious revenue from them, regardless of how you interpret the eMarketer forecasts. The future is fairly bright, and having some elbow room to grow may be helpful … unless you see tons of risk.
If Twitter can’t generate enough top- and bottom-line success to justify its sky-high valuation – or if some next-big-thing comes along and turns it into the next MySpace – the founders (and especially employees and investors) may rue the decision to have stayed “indie” and eschewed an IPO. There could be a sale … or nothing at all. The financial hopes and dreams would then go the way of TheGlobe.com (for those of you old enough to remember it).
On the other hand, holding firmly onto the equity will be lauded as pure genius if Twitter goes the distance unimpeded and generates vast amounts of wealth in some future IPO (which Stone hasn’t ruled out).
Personally, I favor the Facebook approach over Twitter’s: take time on the way to an IPO, divest a bit along the way at an impressive valuation and give your employees the opportunity to do the same. Exercise a bit of risk management en route to financial fame and glory.
But, I’m the guy who had nothing more than unvested options …