So what’s up with the supposedly brisk 2010 tech-IPO market?
I asked myself that question this week after social-gaming phenom Zynga raised a gargantuan amount of money–$180 million—from Russian investor Digital Sky Technologies, the same outfit that recently bought a chunk of Facebook. Fast-growing Zynga was supposed to be one of the standout, venture-backed IPOs going out next year.
Now, Zynga looks less likely to take the plunge. In an interview, company CEO Mark Pincus confirmed to me that the new funding represents a possible “alternative” to an IPO. “We thought, even in the next six quarters, it was really premature for us from a business standpoint,” he said of going public. Also this week another talked-about IPO candidate, clean-tech firm Silver Spring Networks, said it raised $100 million from investors. That means it could afford stay on the sidelines as well.
Surely some strong Silicon Valley companies will sell shares publicly next year, taking advantage of the (very) nascent economic recovery and investors’ willingness to take some risk again. But I wonder if the big dogs will hang back for a while. The other names mentioned as blockbuster IPO deals for 2010, along with Zynga, have been Facebook and LinkedIn—but I’m not sure either of them is in much of a hurry, either.
Lise Buyer, a former stock analyst, VC and tech-company executive who now runs an IPO advisory firm called Class V Group, agrees. “I think all three of those guys could have very successful IPOs,” she said of the Zynga/Facebook/LinkedIn troika. But “they’ll get there when they get there,” she says. “To the best of my knowledge, none of them have any reason to have to race.”
More marginal companies may be anxious to squeeze through the much-ballyhooed “IPO window” (whatever that is), since investors may be less willing to gamble on their prospects. But Facebook, which is now a Web-culture icon? Zynga, which is profitable and says it has 300 open job positions? They can probably set their own timetable.
That may not please the area’s venture capitalists, many of whom are starved for liquidity and would love a nice juicy exit to show off to their LPs. But even those investors would probably rather get the best deal possible, and have stocks perform well in the long term. Pincus claims his VCs, a gold-plated list including Kleiner Perkins and now Andreessen Horowitz, are all on board with his wait-it-out plan.
Zynga, of couse, faces some other business challenges that could affect a possible deal. It was recently caught up in a mini-scandal over some of the special online offers it uses to entice people to buy things in its online games, for instance. Pincus claims such offers, which Zynga has temporarily suspended, make up on only about 10% of its total revenue, though competitors have speculated the figure is higher. The company’s use of some questionable offers doesn’t make it a less desirable IPO candidate, Pincus says. Zynga has also been extremely aggressive in filing copyright- and trademark-infringement lawsuits against competitors—suits Zynga says are perfectly valid. But rivals gripe they are designed to stomp out competition, and say the flurry of litigation demonstrates that the lightweight games Zynga makes can be easily copied. (I wrote about some of these issues in a story in Forbes in October.)
Other possible deals to look for next year, bankers and VCs say, include Newegg, a profitable online-electronics distributor that filed an S-1 earlier this year, and Chegg.com, which lets students rent textbooks over the Internet.
A final note: I wanted to send a special shout-out to my friends at WordPress, specifically Raanan Bar-Cohen. In recent weeks they’ve gone the extra mile to help fix some technical problems I had as I set up my blog. So thanks again guys! I think the new format looks very spiffy, and I hope my readers do, too.
