It was purely coincidental that last Thursday’s UW Foster School expert panel—“The Intersection of Wall Street & Main Street: Risks and Opportunities of the IPO Market and Access to Capital”—took place in the teeth of the roughest week that investors have endured since the nadir of the Financial Crisis over a decade ago.
“This is one of those weeks we won’t soon forget,” noted moderator Randall Hopkins, who heads Capital Markets Reform and Innovation at the Nasdaq. “It does reflect on the intersection of Wall Street and Main Street being so impactful. You can’t pick up a newspaper or look at a tweet without recognizing the impact that our markets have on our businesses and our lives.”
Panelists for the event were Sunny Gupta, co-founder and CEO of Apptio, Matt McIlwain, managing director of Madrona Venture Group, and Jennifer Koski, the Kirby L. Cramer Endowed Chair in Finance and three-time recipient of the PACCAR Award for Excellence in Teaching at the Foster School.
The topics of their discussion ranged from the external forces that affect the IPO market—such as fears over the spread of the novel coronavirus and political uncertainty—to the internal experience of a firm considering going public.
Koski noted that the two main benefits of going public are access to capital and liquidity. And when she was working on Wall Street in the 1980s, the public markets were the only place to raise serious money. “There wasn’t an alternative,” she said, noting that there were twice as many public firms 20 years ago than there are today. “Fast forwarding to more recent years, companies can wait so much longer before deciding to go public, because you can raise hundreds of millions of dollars in the private equity market. The choice looks a little different now.”
Sunny Gupta shared the story of his company, which has led the creation of the now-ubiquitous “software as a service” category. After launching in 2007, Apptio grew steadily, fueled by five rounds of venture capital financing—$125 million in total—before finally going public in 2016.
“We may have gone public faster, but the access to capital was so huge,” said Gupta.
McIlvain, who serves on Apptio’s board of directors, offered three factors to consider before going public. First is the capital markets, which you cannot control. Second is legal and compliance issues, over which you have some degree of control. Third is your business operations, where you have the most control. “Our view is that you have no business going public if you don’t have a good understanding of both the unit economics of your business and the predictability of the scale of your business. That’s the real discussion in the board room: are we ready? And that’s often a more difficult question than meets the eye.”
“Not every company should be a public company,” added Gupta.
Indeed, after experiencing some queasy gyrations of the market, Apptio has recently shifted to private equity financing.
So, why go public at all? McIlvain offered three good reasons:
- It’s a finance deal. A different way to raise capital, and you need capital to grow.
- It’s a branding event. There is awareness and credibility that comes with being listed on a stock exchange (particularly in the case of comparatively small companies that not everyone knows).
- It enforces discipline.
“There is a lot of discipline and rigor that the public markets—that daily measure and quarterly earnings call—enforce on you as a business,” he said. “If you’re prepared for that rigor before going public, it can actually be very good for an organization.”