Top Silicon Valley player, Gordon Davidson, says that tech companies should drop the IPO goal and focus on private equity and staying as a private business. Davidson is the lawyer behind the mega deals of the past so his views are important to note. Let's look at his reasoning:
The soft-spoken Davidson, chairman of powerhouse law firm Fenwick & West, has had a hand in more than 100 mergers and acquisitions and some 30 initial public offerings — most of them in tech. He's also a lawyer for Cisco Systems, venture firm Kleiner Perkins Caufield & Byers and others.
So it's a bit shocking to hear him downplay the importance of tech IPOs today. For proof, he cites Facebook, Zynga, Twitter, Yelp and others: None is in a particular hurry to sell shares via the stock market.
"Good companies can go public in any market," Davidson says. "Today, it is easier to be a private company than a public one." Public companies "have become enslaved by the expectations of analysts and shareholders," he says.
Those forestalling public offerings are older, better-known companies that have yet to be enticed by a recent uptick in tech IPOs. For older start-ups, a new breed of private-equity investments are an attractive substitute, especially in the face of the weak advertising market that so many social-media companies depend on for revenue.
Such investments in late-stage start-ups such as 6-year-old Facebook, nicknamed "DST deals" — after Russian investment firm Digital Sky Technologies, which started the trend by funneling tens of millions into Facebook and Zynga — are a recent phenomenon. The money goes to buying shares owned by employees or early investors.
The strategy has been accentuated by several crosscurrents: the lingering effects of the worst bear market since the Great Depression; readily available private equity, in the form of investments by firms such as Andreessen Horowitz and DST; and the costs of complying with public company regulations such as the Sarbanes-Oxley Act,which established new standards for boards, management and accounting firms following accounting scandals at Enron, WorldCom and others.
"It is undeniably harder to be public today than 20 years ago," says Bill Gurley, a partner at venture-capital firm Benchmark Capital.
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