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Protocol Pipeline
The inside story of the venture capital and startup world by Tomio Geron.

IPO 2.0: A choose-your-own adventure

IPO 2.0: A choose-your-own adventure

Hello and welcome to Pipeline. I hope your 2020 has been as productive as Taylor Swift's. This week: Rewriting Airbnb's narrative, an actually profitable startup, and how companies are injecting humanity (and more financial control) into going public.

Overheard

  • Calling "Total BS" on PG. Airbnb's legendary founding story includes a last-minute pitch to Y Combinator only a few hours from when applications were due, and voila, it was saved. "The company would have died without YC," Paul Graham wrote in a tweet. But angel investor Paige Craig called him out for rewriting history, as Craig had offered the team a term sheet and shook hands on the deal before he was squeezed out when Airbnb joined YC instead. That doesn't undersell the impact YC made on Airbnb, but it's a reminder that there's often more to a story.
  • Just BackRub it. On the eve of DoorDash's IPO, FirstMark's Matt Turck started an interesting Twitter conversation on the best tech company name changes, like Palo Alto Delivery becoming DoorDash and BackRub becoming Google. I also like CB Insights pivot from "Chubby Brain," although I think Amazon could've stuck with Cadabra Inc.
  • The chain letter makes another comeback. I already wrote about the "fwd: fwd: lucky pitch deck" that went viral to hundreds of investors this summer, but now Homebrew's Hunter Walk is capitalizing on the Substack trend with his idea for a chain letter newsletter where every week the author will pick someone else to write a newsletter.

Biz on Biz

IPO 2.0

When I talked to Airbnb's CEO Brian Chesky about his company going public back in 2018, the already fidgety co-founder was visibly squeamish around the topic. His complaints echoed a lot of what startup leaders were talking about at the time: that reporting on a quarterly basis was bad, that everything was short-term oriented instead of long-term focused and there wasn't the financial benefit that a lot of companies go public for when the private markets were so frothy to begin with.

But that's changed in 2020, and the experimentation and reinvention of the IPO is what I argue is the biggest trend in venture capital this year.

  • First, the stay-private-longer orthodoxy is crumbling, as my colleague Shakeel Hashim noted back in October. Investors including Bill Gurley, Keith Rabois and Chamath Palihapitiya have all railed against it, with Gurley claiming it "was the worst advice in Silicon Valley." (Key word there: "was.")
  • It's helped, too, that tech stocks have had a pretty incredible year, and CEOs like Shopfiy's Tobi Lütke have been talking about how "being public and trusted is the best possible state for a company."

There's the financial experimentation, where more startups are crafting a choose-your-own adventure path to going public instead of the traditional IPO. "It may be a way [to go public], but it may not satisfy the different objectives at different companies," Sequoia's Alfred Lin, who serves on the boards of both Airbnb and DoorDash, told me.

  • This year's already seen companies take very different courses, like the day when both Asana and Palantir chose to do direct listings. Normally companies can't raise capital when taking the direct listing path, but even that may change in 2021 if it gets past a legal battle.
  • Then there's the SPAC boom that's gone wild to the point that it's minted the world's newest youngest billionaire, and Palihapitiya plans to launch one for every letter of the alphabet.
  • This week, Airbnb and DoorDash ran a hybrid auction process that's supposed to result in more visibility into pricing an IPO and less "money left on the table," similar to Unity's IPO. But both companies ended up with enormous pops regardless, although DoorDash's CFO Prabir Adarkar told me he's "comfortable" with where it priced. "You or I could go into Robinhood and buy one share for whatever price it's at now, but it's a very different proposition than selling 33 million shares," he said.
  • DoorDash also dropped the greenshoe, a typical over-allotment option for underwriters. "Why sell 15% of the company at a low price when we know that stock is going to pop?" Sequoia's Lin said. "These kinds of things are all good and they're innovative."

But I think there's a real opportunity in injecting more humanity into the IPO process and transforming it beyond just a financial transaction.

  • Take Equity for Impact. This week I wrote about how a new, all-volunteer Airbnb alumni group had come together for their own version of a startup employee Giving Pledge. Now over 300 Airbnb alumni, investors and employees have signed up to donate some of their IPO proceeds to charity, and they're already hearing from other startups that want to replicate it at their own companies. "Oftentimes in tech, the employees end up becoming the founders of future companies," Airbnb alum Phillippe Siclait told me. "So if we can get people to think about giving more at this stage, then hopefully when they go and start a company, then they can start thinking about that from the very beginning."
  • Both DoorDash and Airbnb also followed in the footsteps of Uber and Lyft in rewarding some of the earliest gig economy workers through bonuses and directed share programs. While one could argue these companies could have done more to support gig workers along the way, too, the recognition at IPO is still important, and it'll be interesting to see if more startups follow the trend of rewarding its earliest users or contributors.
  • Airbnb also created its own endowment for hosts and seeded it with over 9 million shares, where it plans to put extra funds to work in a way that's determined by the hosts themselves, at least once it passes the $1 billion mark (already there) and gets past the six-month stock lock-up (now the hold-up).

Sequoia sent mementos to Airbnb and DoorDash employees.

The traditional IPO celebrations also had to go out the window, but I expect we'll see some of the normal celebrations return in a post-COVID world.

  • DoorDash had originally planned on having its IPO festivities at Oren's Hummus, a Bay Area restaurant that was actually key to its early-day investments. Instead, employees tuned in to panels with founders, restaurants and Dashers, and even an appearance from NASCAR driver Bubba Wallace. It also had a virtual afterparty with over 20 different activities, from yoga and meditation to a kid-friendly cooking class for its parent resource group. DoorDash also sent employees woven blankets, Yeti mugs, a hat and a written note from co-founder Tony Xu. Plus, they got a $25 gift card to buy dinner from a local restaurant using DoorDash.
  • Sequoia also sent mementos to Airbnb and DoorDash employees. DoorDash folks received a customized Chinese food takeout container, a nod to Xu's mom's restaurant, with a history of the company drawn on the outside. In a throwback to the days when Airbnb sold cereal to fund the company, Sequoia made commemorative "ipO's" boxes that had caricatures of the founders and an Airbnb-logo shaped game on the back marking different milestones.
  • Airbnb's employees watched the virtual bell-ringing together on a company Zoom call, and each of the founders were in their own houses. Brian Chesky had a family Zoom call ahead of the IPO, which featured a very good boy who hopefully got a few extra treats on IPO day.

I'm bullish that after this year we'll see startups continuing to craft their own going public process in a way that matches their companies and their culture — and hopefully, the innovation trend toward benevolence will continue, too.

A MESSAGE FROM MICRON

Micron

At Micron, we see an opportunity to establish memory and storage platform capabilities that will unleash software developers to deliver solutions that speed insight and ultimately support emerging customer requirements. The data-centric era has ushered in a new opportunity to tap data for business growth, but many companies continue to struggle to transform mounting data stores into competitive advantage.

Learn how here.

Inside Track

Need to Know

  • The stock market is just too good for Roblox's IPO. Citing the crazy results from Airbnb and DoorDash's IPOs, Roblox is reportedly delaying its IPO to 2021. It's the first time I can remember a company shying away from the markets just because the pop was too high.
  • The cloud is calling. Amazon hopes to train 29 million people to work in cloud computing, no doubt to help AWS, but it could also be a boon for startups (and AWS' competitors).
  • Profitable startup alert: VCs are suddenly fans of profitability, and there's no better place to look than OnlyFans, which recorded $300 million in profits, according to The Information.
  • There's a new firm trying to "short" overvalued startups. Apeira Capital told the WSJ it's not a bet against the companies themselves, but taking advantage of what they see as an inherent overpricing of a lot of buzzy companies.
  • Benchmark named its fifth partner. Generational transfers at firms are one of the most undercovered stories (send me your gossip), but Benchmark just named its fifth partner, Miles Grimshaw, who will take Bill Gurley's vacant slot.
  • From Protocol: Coupa is cribbing from SAP and Oracle. Then it wants to beat them. An inside look on how Coupa's trying to outmaneuver its rivals from Protocol's new enterprise reporter, Joe Williams.
  • This week in VC history: In 2008, Accel raised $1 billion in new funds, a raise labeled as a "Facebook bailout fund" for what was then a "struggling" company.
  • Your weekend reading: At first, it was this Twitter thread about a very New York City moment that caught my attention. But it turns out bird watching has gone very digital and now apps like eBird are clocking over 120 million visits a year in what Outdoor Magazine calls a cross between Yelp, Pokémon GO and Strava.

Five Questions with...

CRV's Reid Christian

Reid Christian is a general partner at CRV, which raised a $600 million early-stage venture fund in July. Christian invests in enterprise IT, SaaS, cloud and big data startups, and led the series B round this summer for Squire, a barbershop software startup that just tripled its valuation this week.

What product or service are you totally, even irrationally, loyal to?

I keep buying running shoes. I'm a sucker for pretty much any model from a Swiss brand called On. The funny thing is, I'm not even a "runner" or a bona fide sneakerhead, per se. I just love the way they look and feel. My penchant for them gets exacerbated by the fact that the shoes wear out quickly and annoyingly, rocks get stuck in the sole of the shoe daily.

SPACs: Overrated or underrated?

Overrated. This is financial engineering at its finest. That said, I do believe that some of the companies pursuing this financing path are frontier technologies, which may not see revenue for years to come and SPACs offer them a viable option for quickly infusing their businesses with cash. For companies with moonshot goals (like Virgin Galactic) or capital-intensive businesses, especially in the auto space (companies like Fisker, Shift, etcetera), SPACs can be a useful vehicle, but they aren't a perfect fit for every company. I just consider them another useful tool in the toolkit and having more tools at your disposal is never a bad thing.

What's a pitching pet-peeve?

Diving right into the business. I love hearing the founding story. Why did you decide to found a company? Why was this the problem you just had to solve? Why do you care so deeply about solving this issue for your customers? If investing was just about the business and not the motivations behind it, I would be an investor in a different asset class. Early-stage venture is different. It's a labor of love. We're by our founders' sides early on, so trust and vision are critical components for all of us at CRV. We care deeply about our entrepreneurs, so it's important that we get a sense for what drives them and why they're invested in going on this journey with us.

What company, outside of your portfolio, have you been most impressed to watch this year?

Calendly. This is an incredible entrepreneurial story that is only now getting the recognition it deserves for being a superior business model. It started as a niche simple product, and today it is a defensible, viral enterprise product that drastically improves productivity for users and prospective users.

What's one of the worst predictions you've ever made?

Last year I said that Amazon would make a large acquisition, and in my mind I thought it would be Slack. My theory was wrong. Slack did get picked up, but it was Salesforce that nabbed them, not Amazon.

A MESSAGE FROM MICRON

Micron

At Micron, we see an opportunity to establish memory and storage platform capabilities that will unleash software developers to deliver solutions that speed insight and ultimately support emerging customer requirements. The data-centric era has ushered in a new opportunity to tap data for business growth, but many companies continue to struggle to transform mounting data stores into competitive advantage.

Learn how here.

Thanks for reading this week's Protocol Pipeline. If you like what you're reading, sign up here to get it in your inbox. Send story tips and newsletter feedback to biz@protocol.com.

Correction: An earlier version of this story misspelled Phillippe Siclait's name.This story was updated Dec. 14, 2020.

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