On Internet IPOs
This seems to be the year the Internet IPO returns.
It is a very exciting time to be in the startup world. San Francisco is abuzz these days with talks of major 2011 IPOs from companies such as Groupon, LinkedIn, Demand Media, Skype, and others. The other big two, Facebook and Zynga, are almost surely to IPO in 2012. Everywhere I turn people are talking about who is going public and when.
On the news of recent high valuations via private financings, the broader press is signaling alarm bells, citing another "bubble." John Battelle wrote a great post pointing out that no, in fact, we haven't seen this movie before and that the companies now earning billion dollar valuations do, in fact, deserve them.
Among his better points:
"Each of the companies earning these valuations have revenues in the hundreds of millions or more, and operating profits in the tens of millions, if not more. Most also have operating histories of many years, and/or executives and boards who have extensive histories operating in the Internet economy."
Fred Wilson agrees:
"But it is very possible that some or all of these deals will be good buys even in the face of an overheated valuation environment. The public Internet names, most of which went public eight to ten years ago (or more), are mostly carrying full but not crazy valuations. If this new crop is priced off of those comps, then they could be worth buying and owning. And, as John points out in his post, if these companies contiue to grow rapidly and throw off ever larger amounts of cash, then they could easily be worth well north of what they are worth today."
It has been over ten years since the dot-com bubble and crash. The markets have largely been closed off since (first due to quality supply, then the recession) so now there is a very strong pent up demand. The companies seeking IPO this year are strong, quality companies to fulfill that demand. These companies are earning revenues in the hundred of millions and are generally the market leaders in their respective markets.
So, despite the many very serious problems with the IPO process, 2011 will mark the second coming of the Internet IPO. However, this time around, the companies are all very, very real.
