I was just reading in another thread about how a new hypothetical tech crash wouldn't be as bad as the dot com crash for precisely the reason that all these new, 'over-valued' companies are private rather than public. In this context, isn't this kind of investment vehicle dangerous?
(I don't pretend to understand this kind of thing and would be glad to be made a little wiser.)
There may be some reason to be concerned otherwise -- pensions and endowments are often customers for this sort of thing -- but they have risk managers that hopefully know what they're doing. Which may not give you warm fuzzies, given recent history, but in general these are not the people losing their shirts and affecting the economy as a whole.
But you could say that the huge growth we're seeing in investment in tech now is different to 15 years ago because:
- most VCs are funding significant amounts of their capital in later-stage startups and companies that have shown a lot of promise ("private IPOs"), rather than the other way around
- there are more startups now than 15 years ago but the same (or lower) amount of total capital invested, whereas before a smaller number of startups were funded from a huge pot
- generally tech companies nowadays, even those unicorns a few years old, have solid financials and managed to turn a profit. This wasn't entirely the case 15 years ago.
There was a Andreessen Horowitz presentation on this very topic going around a few weeks back - it's worth a read if I can dig it up (or you could be relentlessly resourceful ;)).
It's like the company had a huge push to go public and then everyone was so tired that they just stopped working once they got public.
I understand that it's a company full of great people and I don't want to shit on someone's hard work but when they went public the deal they struck was
- the markets gave them a huge valuation and in return the market expected big things from them.
So what great new things has twitter done since going public to earn their huge valuation? I think even the most ardent twitter supporters would have to agree that they have disappointed as a company since going public.
As an aside, I don't think this post IPO lull is limited to twitter, with longer cycles before going public I expect alot of companies to show this type of burnout after going public.
Good companies will get this and give their employee's a way of getting liquidity from their options before IPO. I think this will become a new recruiting tool for the best companies.
Something along the lines of if we don't go public in 7 years from the companies founding then we'll provide a liquidity event for employee's who have been here longer than 4 years.
GS will play a roll in this I'm imagining.
On your last point - a private liquidity event, AKA raising an investment round and offering employees the option to sell back equity? Or, could the company step out of the way completely and let banks buy equity directly from employees? (I've never worked for a company in this situation so I have no idea what the laws would allow)
https://www.google.com/finance?q=NYSE%3ATWTR&ei=z5q3VdHiDon3...
Is there a term for this type of fund? "Private equity mutual fund" maybe?
Having said that, all they are doing is providing the same Investment banking services to companies that they always have, just now, they are offering it to private companies.
Think of it as a cover your ass approach, if companies decide not to go public, GS still gets a piece of the action, and if they do go public then its an easy pick for GS to lead their public IPO's as both sides already know each other.
They are also trying to lead the charge in allowing people to invest in private companies through investment vehicles that look similar to funds( ie pooled capital that they raise and invest for share holders).
With companies staying private for so long some people, and I'm starting to become one, now think that the day of the publicly traded growth company are coming to an end and that companies will go public once they have matured into value stocks.
This is evidenced by the markets are loosing patience with companies like Groupon, Zinga, Yelp and my personal whipping boy Twitter. Come on twitter, get your act together, you wont' be around much longer if you continue on like this.