Getting Funded

This post was originally post by Timothy Bernard Jones on buzzient.com, on August 9 and has been posted with his permission. You can view the original post here

With the public equity markets in turmoil, one of the drumbeats I’m hearing is how private companies either:

A. Need to file and do an IPO as quickly as possible (for later stage companies)

or,

B. Need to raise as much VC as possible and stockpile it away while keeping the burn low(a la the Sequoia ventures presentation from a couple of years ago) until they can go public

What’s lost in this discussion is the critical question “Why go public?”.

So many startups and founders seem to be focused on getting an IPO, without asking themselves whether they really want to manage a public company. Especially right now. So few people realize that because of SEC Rule 144, insiders (save a few, but that’s another issue) don’t get to sell for 180 days. In that first six months, everyone in the company adds a stock widget to their desktop, and much productivity is lost daydreaming about the end of the lockup period.

In the interim, all sorts of crazy market and world events could take place that would hammer the stock lower and lower. Looking at the news over the last few days, I can’t help but think that insiders at a variety of recently public companies are banging their heads against the wall in angst.

Look at the Nasdaq right now. There are number of companies with cash flow machines as businesses that are getting pounded by the public markets. In times like these, being public exposes the company to the vagaries of the market and the volatility therein.

I think any founder really thinking about the long term has to consider staying private, and building a valuable company outside of the mood swings of the public market. Liquidity can be achieved in a variety of ways, from shadow stock to secondary sales, all without having to be publicly traded.

By thinking of staying private, founders can focus on really building solutions that help customers and a culture that inspires employees. I’m oft reminded of one of the best software companies around where this principle is manifest: SAS, the analytics giant in NC. #188 on the Forbes list of largest private companies, SAS has built a $2B+ revenue company without having to deal with Wall Street. The founder Dr. Jim Goodnight, pioneered many of the principles of building a totally supportive work environment; SAS provided on-site child care and other services long before most valley companies even dreamt of doing so.

Back in the 70′s (A decade we’re going to look more carefully at with this global financial/demand crisis), plenty of great companies stayed private and built value. Only when the go-go equity culture of the 80′s/90′s took hold did we see this crazy sense of urgency to go public. I’ve had the opportunity to be a part of two companies that have gone public; in both cases the IPO date was a bit anticlimactic. You STILL have to build a business.

So, looking at the tale of the tape, I can only think that like the 70′s, staying private is about to come back in fashion. Hopefully it’ll end there, and we won’t see polyester shirts, pleather, or bell bottoms again…;o)