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Asana lost 120m last year Snowflake lost 350m last year Unity lost 160m last year Sumo Logic lost 43m last year Jfrog lost 400k last year Out of curiosity,

by d_watt 6y ago

Asana lost 120m last year Snowflake lost 350m last year Unity lost 160m last year Sumo Logic lost 43m last year Jfrog lost 400k last year Out of curiosity, is it normal for companies to IPO this far away from profitability, or is this a recent tech thing? I feel like it was a big deal when uber IPO'd so far away from profitability, now it seems standard.

duutfhhh 6y ago
Investors want to make their exits by offloading the burden to the public.
dgudkov 6y ago
In some cases it's OK. Many VC-pumped pre-IPO companies do that. As far as I understand the common strategy is to burn the surplus of investors' money on sales and marketing in order to pump up the company's revenue and thus capitalization. It is assumed that either the increased revenue will achieve greater economies of scale and will cover the high cost of sales and marketing. Or, if that didn't work, the marketing and sales expenses will just be rolled back and the company will continue growing organically, albeit with a lower capitalization.
KerryJones 6y ago
"normal" in the last 10-15 years -- yes. That doesn't mean it's a good deal. The "recent" idea has been to project growth (rather than profit) as the primary metric, with the idea that eventually when "dominant" in the sector the money that goes into growth will multiply profitability. I don't subscribe by this method. Another thing to keep in mind is that IPOs are usually done for 1 of 3 reasons: 1) To allow an exit for investors This means that you have to think you know more than their current investors do about their growth -- unless the investors have other specific timelines (sometimes they do), or else you're buying what someone else thinks is no longer a good use of capital. 2) To raise money This means the company needs more cash, either for "growth" or because they will fail without it. Again, you should be certain that this company-in-need deserves more money. 3) To create a sense of "official-ness". Some companies can be better respected in their industry and helps with their brand if they're public. It's been reported that public CEOs often spend about 50% of their time working on matters that relate to simply being public. It's one of the reasons that Warren Buffett will sometimes take companies private after buying public ones -- to afford them more time and energy to work on the actual company. There's very little about going public that actually makes a company better.
- philsnow 6y ago
  Another big reason is to make it easier to do acquisitions. It's a lot easier (for both sides!) to buy another company with your stock if there is more confidence in the valuation, that way everybody knows what they're getting (or giving away). One way to get a really, really solid valuation is to be publicly traded.
- Taniwha 6y ago
  Yeah some of remember working for startups back when the rule of thumb was that you didn't IPO until you had had 5 profitable quarters - the the whole dotcom bubble happened and sort of broke sanity
anm89 6y ago
I'd be really curious to see numbers on the net profitibality of the S&P500 and Nasdaq indexes. Like, as a casual observer, it seems more common to hear of companies losing money than making money these days, especially outside of FAANG.
zhte415 6y ago
Crazy losses, and I've not heard of one of these companies. Some people have. Cool. You can employ 1000 people at 50k Euro a year plus infra without hitting these losses, and one on one thousand is surely to come up with something. Not that I'd jump to do that without having a revenue plan. Niche products of products burning a lot of cash doesn't make a lot of sense.

by d_watt 6y ago

duutfhhh 6y ago

Investors want to make their exits by offloading the burden to the public.

dgudkov 6y ago

In some cases it's OK. Many VC-pumped pre-IPO companies do that. As far as I understand the common strategy is to burn the surplus of investors' money on sales and marketing in order to pump up the company's revenue and thus capitalization. It is assumed that either the increased revenue will achieve greater economies of scale and will cover the high cost of sales and marketing. Or, if that didn't work, the marketing and sales expenses will just be rolled back and the company will continue growing organically, albeit with a lower capitalization.

KerryJones 6y ago

"normal" in the last 10-15 years -- yes. That doesn't mean it's a good deal. The "recent" idea has been to project growth (rather than profit) as the primary metric, with the idea that eventually when "dominant" in the sector the money that goes into growth will multiply profitability. I don't subscribe by this method. Another thing to keep in mind is that IPOs are usually done for 1 of 3 reasons: 1) To allow an exit for investors This means that you have to think you know more than their current investors do about their growth -- unless the investors have other specific timelines (sometimes they do), or else you're buying what someone else thinks is no longer a good use of capital. 2) To raise money This means the company needs more cash, either for "growth" or because they will fail without it. Again, you should be certain that this company-in-need deserves more money. 3) To create a sense of "official-ness". Some companies can be better respected in their industry and helps with their brand if they're public. It's been reported that public CEOs often spend about 50% of their time working on matters that relate to simply being public. It's one of the reasons that Warren Buffett will sometimes take companies private after buying public ones -- to afford them more time and energy to work on the actual company. There's very little about going public that actually makes a company better.

philsnow 6y ago
Another big reason is to make it easier to do acquisitions. It's a lot easier (for both sides!) to buy another company with your stock if there is more confidence in the valuation, that way everybody knows what they're getting (or giving away). One way to get a really, really solid valuation is to be publicly traded.
Taniwha 6y ago
Yeah some of remember working for startups back when the rule of thumb was that you didn't IPO until you had had 5 profitable quarters - the the whole dotcom bubble happened and sort of broke sanity

anm89 6y ago

I'd be really curious to see numbers on the net profitibality of the S&P500 and Nasdaq indexes. Like, as a casual observer, it seems more common to hear of companies losing money than making money these days, especially outside of FAANG.

zhte415 6y ago

Crazy losses, and I've not heard of one of these companies. Some people have. Cool. You can employ 1000 people at 50k Euro a year plus infra without hitting these losses, and one on one thousand is surely to come up with something. Not that I'd jump to do that without having a revenue plan. Niche products of products burning a lot of cash doesn't make a lot of sense.