Go Public Sooner: Takeaways from Coatue's 2024 EMW Conference

Here's another article and another mention of the best podcast around, BG2. In a recent episode of the pod, they recapped the Coatue EMW conference and sparked a thought-provoking conversation about the shifting landscape of tech IPOs. With IPOs at an all-time low and more companies opting to stay private, it's worth exploring why this trend is happening and whether it benefits these companies.

Lofty Metrics and Thresholds

A significant barrier to going public is the increasingly high benchmarks that companies are expected to meet. The prevailing wisdom at the moment suggests that a tech company needs to reach a $10 billion market cap or $1 billion in revenue before considering an IPO. This expectation can be daunting, especially for companies thriving in the private market but yet to hit these arbitrary thresholds.

Often dictated by market sentiment and investor expectations, these lofty metrics can seem impossible. However, they shouldn't be the sole determinants of a company's readiness to go public. For many companies, waiting to meet these thresholds could mean missing out on crucial growth opportunities and market presence.

The Fear of Markdowns

According to data from Coatue, many secondary markets are currently trading at the same discount as public markets. This parity challenges the belief that staying private shields companies from the volatility and scrutiny of public markets. In reality, these companies will eventually need to face the music. The reluctance to go public often stems from a fear of markdowns and the transparency of public trading. However, this avoidance can be a double-edged sword. Investors are increasingly savvy and will inevitably find ways to appraise a company's true value, regardless of its public or private status.

The Myth of Stability

There's a standard narrative that staying private offers stability that public companies lack. This narrative falls apart under scrutiny. Just because a company doesn't face daily public market valuations doesn't mean its intrinsic value remains unchanged. Private companies are not immune to market forces, and their valuations can fluctuate based on the same economic conditions affecting public companies.

The Advantage of Liquidity

While some argue that going public too soon can result in becoming a micro-cap company with limited analyst coverage, the benefits of liquidity often outweigh these concerns. Being a public company provides access to a broader range of investors and can facilitate more significant capital-raising opportunities. Moreover, the public market can offer discipline and scrutiny that drives better corporate governance and operational efficiency. The transparency and accountability required of public companies can lead to more sustainable growth in the long run.

Conclusion

The tech IPO landscape is shifting, but the underlying reasons for staying private may hold less water than they once did. Companies should consider the benefits of going public sooner rather than later. The artificial thresholds and fear of markdowns should be balanced with the advantages of liquidity, broader investor access, and the growth opportunities that come with being a public company.

Ultimately, it's about striking the right balance and making strategic decisions that align with the company's long-term vision and growth objectives. The sooner companies embrace the reality of the market and leverage the opportunities available, the better positioned they will be for sustainable success.