September 19, 2020
Barta IV / Andy Ivandikov / Protocol
Hello and welcome to Pipeline. This week: Why you're probably in the Daddy Gang, Kanye West's love for Y Combinator and how an IPO bonanza revived the debate over IPOs.
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This week's public market deluge stood out for more than just the number of tech IPOs.
Sure, the volume is unavoidable: Not only did we see Snowflake pull off the biggest software IPO ever, there were also two smaller traditional enterprise IPOs in Sumo Logic and JFrog, gaming startup Unity running an auction process similar to Google's IPO, and the announcement that a SPAC will soon take Opendoor public. And if that's not enough excitement, Palantir is expected to do its direct listing on Sept. 29.
But what stands out to me is not just the volume, but all those different paths that companies are taking to go public.
Snowflake had a huge pop when it started trading Wednesday via a pretty traditional IPO.
And that's the rub with the traditional approach. Companies want that pop when they IPO as a marker of success, but there's been pushback in the tech community that the process isn't actually all that great for the companies. Tech IPOs in particular have been popping a lot this year.
But Snowflake's CEO Frank Slootman doesn't agree with the idea that the company left billions on the table in a broken process. "It's just nonsense talk," Slootman told Forbes on the afternoon of its IPO. "A lot of the direct listing chatter, they're like, 'you left money on the table.' It's complete nonsense."
So the IPO may be imperfect, but having billions left on the table doesn't automatically mean it's broken. And all those different paths to going public that caught my eye might show us if there is a better way.
There will be some experimentation, but if the results aren't so great, don't be surprised if the traditional IPO sticks around for a little while longer — however much Gurley complains.
Join us at noon ET on Sept. 24 for The Evolution of Cybersecurity event with Protocol's Tom Krazit and Kevin McAllister. Our panel of experts will discuss how the cybersecurity playing field is always evolving, and in this new era of work, how business leaders should ensure that security is a fundamental part of their technology strategy. Featuring CI Security's founder and CISO, Michael Hamilton; Microsoft's corporate VP, Joy Chik; and more. This event is presented in partnership with Yubico.
Investors are reporting a drop in using contractual terms like liquidation preferences and ratchets in a sign that the funding environment is actually more founder-friendly than five years ago.
Image: Printed with permission
Investors expected the pandemic to usher in more investor-friendly terms as the deal pace slowed and valuations dropped. Instead, deal terms have actually become more founder-friendly than five years ago, and venture capitalists are using tools like 2x liquidation preferences and redemption rights less than before, according to research out of Harvard and Stanford on the impact of COVID-19 on the venture capital industry.
What's one startup or product that failed or was shut down that you wish was still here today?
Without a doubt it would be Turntable.fm, a social music service that was tragically ahead of its time. For those who weren't music-obsessed and living online in 2011, the site allowed you to join/create custom themed rooms where you could listen to music shared by others, share your own music as a virtual DJ, feel good about yourself when others liked your song choice, complain when someone played something lame, chat with friends, etc. It was peak summer 2011 and would have been so good in the current environment.
What's a secret obsession of yours that most people don't know about?
My parents took us to Scotland as kids, and I came back with a scone obsession. Don't have a great explanation other than scones are clearly the best pastry when done well. More nuanced than your ordinary muffin, but less fussy than a croissant. If I had more time, I'd probably start a scone blog or learn to bake.
What's your favorite piece of advice to give to first-time founders?
Focus. Too many startups fail because they try to do too much. Also, be a good human.
What's one problem you wish an entrepreneur would solve?
The growing medical debt crisis in America. There is clear inequality in the system and the number of accounts going into collection have accelerated during the pandemic while prices continue to rise. There isn't going to be a single fix here, but there needs to be more innovation around solutions that increase access to quality care while finding ways to reduce costs.
What recent shift or innovation do you think will change the VC industry the most in the next year?
Other than the impact of going fully remote for a year, I think there's a general perception that the risk/reward is more attractive right now at earlier stages. As a result, downstream capital is moving earlier and there's a bit of a cascade effect taking place. I expect seed investing to be particularly crowded over the coming months.