If you talk finance to the young entrepreneurial types in L.A.’s burgeoning tech community, they might tell you that it’s fairly easy to get early stage financing from angel investors. They might complain that it’s much harder to get later-stage series A and B money. And they might even open up and talk about the notion of selling out eventually to a bigger company.
But here’s something you probably won’t hear them talk about: going public.
Few local tech companies sell their stock on the public exchanges. There’s Demand Media, J2 Global, Boingo Wireless and a handful of others. In the pipeline? Well, LegalZoom.com talked about going public a couple of years ago, shelved plans and has been mum about it since. Rubicon Project made moves like it might go public, but we’re still waiting. Otherwise? Cue the crickets.
This in marked contrast to the late-1990s dot-com bubble in which companies started up at a furious pace and rushed to sell their stock in initial public offerings – often with eye-popping results. But today if you suggest to Silicon Beach denizens that they should hold an IPO, you’re likely to get eye-rolling results. Where have all the IPOs gone?
I was interested to hear Marc Andreessen’s comments last week on the CNBC show “Closing Bell.” As the co-founder of Netscape Communications and now general partner of the Silicon Valley venture capital firm Andreessen Horowitz, he’s in touch with lots of tech companies.
Emerging entrepreneurs today see the public stock markets as “incredibly hostile,” he said. “The new running theory among new entrepreneurs is never take your company public, or don’t do it as long as you possibly can.”
After the dot-com bubble burst in 2000, he explained, lots of new regulations were heaped onto public companies. That makes running a public company far more cumbersome and expensive. The “cheap money” that used to lure entrepreneurs to the stock markets now looks pricey indeed.
And in recent years, all manner of corporate governance standards have been imposed. Running a public company today is tricky and at times treacherous. Ask Jamie Dimon about that.
“So there have been a series of regulatory reforms, a series of corporate governance movements and the result has been a huge disincentive for companies to go public,” Andreessen continued. “And, of course, the problem with that is if new companies don’t go public then you get exactly what we are seeing, which is the number of public companies falling.”