Why the Snap IPO is so Damn Important
The venture capital and tech community have been obsessing over the Snap IPO since last November. The young company has yet to turn a profit, and still they are the first of the high profile private companies including Uber, Airbnb, Spotify to hit the public markets.
The vast majority of us in the tech industry are not directly impacted by the Snap IPO. We are not investors or employees at the company, and we aren’t part of the LA tech scene. So why is the Snap IPO so important? Why does everyone in the tech ecosystem need to pay attention? Because, if successful, the Snap IPO could create a ripple effect beyond the newly minted Snap millionaires.
A successful IPO of this size and magnitude has the potential to impact a host of players in the ecosystem. Technology inherently runs in cycles and these cycles, often catalyzed by sometimes individually insignificant events, can have an impact on public companies, private companies of scale, startups, incubators, and the communities that foster this activity. The Snap IPO, while hardly insignificant, may be that important catalyst for change in the technology industry.
Here are the many things I expect to see in the coming months should the offering price hold and the company succeed in the often challenging public eye…
· Public investors in technology based IPO’s will have their appetite’s reignited for future offerings. Even the large public investors, given they are mostly evaluated on a relative basis, often operate in a mode driven by the fear of missing out.
· Investment banks will see a need to address hungry public investors and will aggressively blanket the market in an attempt to convince management teams and boards previously reluctant to entire the public markets that now the time is right. Airbnb, Uber, Lyft and Spotify as well as many other relatively mature private companies could be next.
· With a more vibrant IPO market for venture backed technology companies, public companies focused on an M&A strategy for growth will have to act quickly or be forced to manage a transaction in the more complicated public arena. This will result in more competition for these companies, higher purchase prices and shorter decision cycles.
· Private companies raising capital, particularly at the later stage, will see greater competition amongst growth investors in their round improving price, terms, and timing from what they have seen in recent months.
· Cash and public stock of newly minted public companies will become available to acquire complementary products, companies, and to grow into new markets.
· And entrepreneurs and early employees who profited from the successful IPO are able to invest back into their communities in the form of seed stage investments to support the next generation of startup companies. Something we saw in the development of the DC ecosystem.
The debate will continue on the right valuation of Snap, how it compares to Facebook and Twitter’s IPOs, and how the pricing of the IPO underwriters helps or hurts the company. But the real story will come later as we start to see how the Snap IPO will effect tech employees, founders and investors alike. Whether the SNAP IPO is the spark that lights this fire will be seen but that possibility is why this is such a closely watched event.