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I'm not a financial expert so I'm really not sure, but I'm extremely distrustful of this JOBS Act and "IPO-Lites." Not Shopify specifically, but it's going to o

by ditonal 11y ago

I'm not a financial expert so I'm really not sure, but I'm extremely distrustful of this JOBS Act and "IPO-Lites." Not Shopify specifically, but it's going to open the door to a lot of smaller companies that have a lot less scrutiny on them to IPO and I worry that it will allow VCs to dump their weaker companies on the public, and turn a potential private equity bubble into something bigger. I worked for a startup that I know is in shaky grounds. While I hope they recover and do great, they also suddenly have freelance "journalists" writing positive things about them in the press, and I'm 99% sure it's paid PR via VC connections (especially given that I know for a fact the publication - TheStreet.com - has ties to the NYC VC community). Meanwhile, because it's not a super well known company, there's not a lot of opinions out there one way or the other on it so when you Google its name you just read these few very positive pieces about it. Now, this may be just paranoia, but we as an industry should be vigilant that VCs don't try to run pump-and-dumps on their weaker holdings. It will benefit nobody but bad VCs and will harm the public and the industry's reputation, and due to lockups it's unlikely it will benefit the typical employee with common shares anyway. I read an article about these mini-IPOs in the WSJ and it's saying "Democrats like it because it empowers the little guy, Republicans like it because it removes regulation." They also tried to spin it as "VCs HATE this! Average investors can take over instead now!" I don't trust Wall Street and I don't trust the SEC's ability to regulate them, so when the rules change I assume that Wall St is getting their way rather than the reverse. If the Republicans, Democrats, and Wall St all love a new piece of regulation, I assume the public's about to get screwed.

pbreit 11y ago
Except that its a Canadian company, its a regular IPO. $100m in software revs reasonably supports a $1b valuation. The company has been working hard for nearly 10 years with relatively limited VC involvement. I don't really understand your post in this context.
- ditonal 11y ago
  First of all, limited VC involvement? They raised $122 million from VCs: https://www.crunchbase.com/organization/shopify https://www.crunchbase.com/organization/shopify These investors include VC firms like First Mark Capital, which are NYC based - and oh yeah, the exact same VC firm that was the biggest investor in the startup I worked at that I said is in freefall but now getting positive financial press. It's not about whether the VCs are running operations, it's about whether the VCs are worried they won't get their money back without an IPO, which seems like a genuine concern for an operation that's losing money. As to your second point of confusion, your pointing out its a Canadian company as if what I'm saying doesn't apply: "We qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States. These provisions include:" They are IPOing on the NYSE so they are still regulated by the SEC, and if you actually read the filing you will note that they are using the new JOBS act in order to IPO. What I'm saying is not unrelated to anything, Shopify is one of the first companies to take advantage of these new changes in regulation. Maybe Shopify specifically isn't a shaky company, but I do think the doors have been opened for shaky companies without much scrutiny to be sold to a public that has been misled by PR.
  - pbreit 11y ago
    Yeah, but they bootstrapped for 5 years and the same 3 funds anchored each round. They were fairly successful before taking any money. My bad. You gave the impression (to me, at least) that this was some sort of shaky, small situation when it was anything, but. If anything, there are way too few IPOs these days. The only people making money on new company creation are venture investors. Also, something like 85% of the IPOs in the last 2 years have used the new JOBS rules, so it's not really "one of the first". The threshold is $1b in revenues, after all, quite a rarity at the IPO stage.
- cperciva 11y ago
  Does $100M/year in revenue and $-25M/year in profits really make a company worth $1B these days?
  - pbreit 11y ago
    Absolutely. $100m in revs is basically the magic number for $1b IPO. And a growth company should be "losing" money. Otherwise it's run out of ideas on how to make money which is a red flag.
    - cperciva 11y ago
      I clearly need to abandon my profitable and steadily growing SaaS business and launch a startup which sells dollar bills for 75 cents each. IPO here I come!
      - biot 11y ago
        Or try the Groupon model: sell other peoples' dollar bills for 50 cents and give them 25 cents from the sale.
        cperciva 11y ago
        ... and then come to Startup School and talk about how you hate people who run unsustainable businesses.
      - noir_lord 11y ago
        I would like to offer 100m for 1% and no board seat. I think my offer is tough but fair.
ojbyrne 11y ago
Pretty well every business story is "paid PR."
- ditonal 11y ago
  Sure, but for smaller companies you will ONLY see the paid PR , whereas big companies have a lot more critics since they are better known, have more employees, etc.
AYBABTME 11y ago
Shopify is not a shaky company at all. It's a top notch company, top place to work, top product. It's like a recipe of everything done well. So I don't really understand why you say that.
- ditonal 11y ago
  I am not talking about Shopify specifically, the reason it's relevant is because they are IPOing using a new set of rules based on the JOBS act. This IPO would not have been possible even two months ago. Read the filing and read more about the JOBS act and "IPO-lites." Even if Shopify is not a bad investment, the point stands that smaller companies under less scrutiny being sold to the public opens up big avenues for fraud and pump-and-dumps.
  - walterbell 11y ago
    Could you provide a pointer to the section of their filing which identifies the new rules?
    - ditonal 11y ago
      Just search for JOBS in the filing itself, I've quoted it a few times in other comments. Here's a link talking about the regulatory change: http://ww2.cfo.com/regulation/2015/03/sec-approves-new-rules-for-ipo-lite-offerings-regulation-a/ http://ww2.cfo.com/regulation/2015/03/sec-approves-new-rules...
- alex_anglin 11y ago
  As a techie in Ottawa, I'd add that they've also contributed significantly to the local entrepreneurship ecosystem in a variety of ways. Good on them for that!
djloche 11y ago
I think this comment was made on the wrong window. edit: to clarify: there was a thread about crowdfunding in colorado relatively near to this thread.
- deleted 11y ago
  [deleted]
soldergenie 11y ago
It is actually quite common in Canada for small companies to IPO with total market caps of just tens of millions of dollars. Canada doesn't have nearly as many private company investors as the USA, so companies (especially resource based companies) just go public when they are small in order to raise money. All these small company IPOs are on a separate exchange (the TSX Venture exchange), and if the company gets big enough, they 'graduate' to the main exchange. This works because the regulatory overhead of being public is a lot less in Canada on the TSX Venture exchange - No Sarbanes Oxley! London has something similar with the AIM. I think it is a better system than the US model, because it allows anyone to invest in the small companies, not just venture capitalists or people who participate in specialist schemes to buy private company shares.
- ditonal 11y ago
  But in fact they are IPOing on the NYSE using the new regulation that just changed: http://ww2.cfo.com/regulation/2015/03/sec-approves-new-rules-for-ipo-lite-offerings-regulation-a/ http://ww2.cfo.com/regulation/2015/03/sec-approves-new-rules... https://www.sec.gov/Archives/edgar/data/1594805/000119312515129273/d863202df1.htm https://www.sec.gov/Archives/edgar/data/1594805/000119312515... "We qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States. These provisions include:" And yes the advantage is that you open up emerging companies to retail investors. The problem is the tech industry's history with small companies and retail investors is not so great, I would say the danger outweights the benefits.

by ditonal 11y ago

pbreit 11y ago

Except that its a Canadian company, its a regular IPO. $100m in software revs reasonably supports a $1b valuation. The company has been working hard for nearly 10 years with relatively limited VC involvement. I don't really understand your post in this context.

ditonal 11y ago
First of all, limited VC involvement? They raised $122 million from VCs: https://www.crunchbase.com/organization/shopify https://www.crunchbase.com/organization/shopify These investors include VC firms like First Mark Capital, which are NYC based - and oh yeah, the exact same VC firm that was the biggest investor in the startup I worked at that I said is in freefall but now getting positive financial press. It's not about whether the VCs are running operations, it's about whether the VCs are worried they won't get their money back without an IPO, which seems like a genuine concern for an operation that's losing money. As to your second point of confusion, your pointing out its a Canadian company as if what I'm saying doesn't apply: "We qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States. These provisions include:" They are IPOing on the NYSE so they are still regulated by the SEC, and if you actually read the filing you will note that they are using the new JOBS act in order to IPO. What I'm saying is not unrelated to anything, Shopify is one of the first companies to take advantage of these new changes in regulation. Maybe Shopify specifically isn't a shaky company, but I do think the doors have been opened for shaky companies without much scrutiny to be sold to a public that has been misled by PR.
- pbreit 11y ago
  Yeah, but they bootstrapped for 5 years and the same 3 funds anchored each round. They were fairly successful before taking any money. My bad. You gave the impression (to me, at least) that this was some sort of shaky, small situation when it was anything, but. If anything, there are way too few IPOs these days. The only people making money on new company creation are venture investors. Also, something like 85% of the IPOs in the last 2 years have used the new JOBS rules, so it's not really "one of the first". The threshold is $1b in revenues, after all, quite a rarity at the IPO stage.
cperciva 11y ago
Does $100M/year in revenue and $-25M/year in profits really make a company worth $1B these days?
- pbreit 11y ago
  Absolutely. $100m in revs is basically the magic number for $1b IPO. And a growth company should be "losing" money. Otherwise it's run out of ideas on how to make money which is a red flag.
  - cperciva 11y ago
    I clearly need to abandon my profitable and steadily growing SaaS business and launch a startup which sells dollar bills for 75 cents each. IPO here I come!
    - biot 11y ago
      Or try the Groupon model: sell other peoples' dollar bills for 50 cents and give them 25 cents from the sale.
      - cperciva 11y ago
        ... and then come to Startup School and talk about how you hate people who run unsustainable businesses.
    - noir_lord 11y ago
      I would like to offer 100m for 1% and no board seat. I think my offer is tough but fair.

ojbyrne 11y ago

Pretty well every business story is "paid PR."

ditonal 11y ago
Sure, but for smaller companies you will ONLY see the paid PR , whereas big companies have a lot more critics since they are better known, have more employees, etc.

AYBABTME 11y ago

Shopify is not a shaky company at all. It's a top notch company, top place to work, top product. It's like a recipe of everything done well. So I don't really understand why you say that.

ditonal 11y ago
I am not talking about Shopify specifically, the reason it's relevant is because they are IPOing using a new set of rules based on the JOBS act. This IPO would not have been possible even two months ago. Read the filing and read more about the JOBS act and "IPO-lites." Even if Shopify is not a bad investment, the point stands that smaller companies under less scrutiny being sold to the public opens up big avenues for fraud and pump-and-dumps.
- walterbell 11y ago
  Could you provide a pointer to the section of their filing which identifies the new rules?
  - ditonal 11y ago
    Just search for JOBS in the filing itself, I've quoted it a few times in other comments. Here's a link talking about the regulatory change: http://ww2.cfo.com/regulation/2015/03/sec-approves-new-rules-for-ipo-lite-offerings-regulation-a/ http://ww2.cfo.com/regulation/2015/03/sec-approves-new-rules...
alex_anglin 11y ago
As a techie in Ottawa, I'd add that they've also contributed significantly to the local entrepreneurship ecosystem in a variety of ways. Good on them for that!

djloche 11y ago

I think this comment was made on the wrong window. edit: to clarify: there was a thread about crowdfunding in colorado relatively near to this thread.

deleted 11y ago
[deleted]

soldergenie 11y ago

It is actually quite common in Canada for small companies to IPO with total market caps of just tens of millions of dollars. Canada doesn't have nearly as many private company investors as the USA, so companies (especially resource based companies) just go public when they are small in order to raise money. All these small company IPOs are on a separate exchange (the TSX Venture exchange), and if the company gets big enough, they 'graduate' to the main exchange. This works because the regulatory overhead of being public is a lot less in Canada on the TSX Venture exchange - No Sarbanes Oxley! London has something similar with the AIM. I think it is a better system than the US model, because it allows anyone to invest in the small companies, not just venture capitalists or people who participate in specialist schemes to buy private company shares.

ditonal 11y ago
But in fact they are IPOing on the NYSE using the new regulation that just changed: http://ww2.cfo.com/regulation/2015/03/sec-approves-new-rules-for-ipo-lite-offerings-regulation-a/ http://ww2.cfo.com/regulation/2015/03/sec-approves-new-rules... https://www.sec.gov/Archives/edgar/data/1594805/000119312515129273/d863202df1.htm https://www.sec.gov/Archives/edgar/data/1594805/000119312515... "We qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States. These provisions include:" And yes the advantage is that you open up emerging companies to retail investors. The problem is the tech industry's history with small companies and retail investors is not so great, I would say the danger outweights the benefits.