I assume that the money is going to Airbnb ads on TV (and on airline seatbacks, and on Facebook, and everywhere else). When you have a model that works and is proven profitable on a unit basis, it makes sense to cram as much money as possible into distribution channels to make sure that it gets in front of everyone.
Post Sarbanes-Oxley, it never makes sense to IPO, ever. You incur costs of several million dollars for compliance. Meanwhile, the ostensible purposes of an IPO (to provide liquidity for shareholders, and to provide access to public capital markets for the company) have had other solutions crop up. There's now an active secondary market for employee stock of private companies, and the vast majority of the money that would go into the public markets is now managed by the same large investment firms that do these late-stage private rounds.
I remember back when I was a countercultural libertarian hacker, we had a saying: "The Internet treats censorship as damage and routes around it." Well, the financial markets treat regulation as damage and route around it.
Post Sarbanes-Oxley, it never makes sense to IPO, ever.
Let's go with, maybe, "Pre-SOX, you could reasonably IPO on revenue in the tens of millions with a valuation in the hundred of millions. SOX decisively removes that option. We now have economically viable alternatives to IPO, for high-growth tech companies, at valuations into minimally 'the tens of billions of dollars.' It may make sense to IPO if one is not a high-growth tech company or one desires a valuation higher than 'tens of billions of dollars.'" (Context: Uber is $25 ~ $50 billion, Microsoft is ~$375 billion.)
The a16z deck posted a couple of days ago made a great point relating to this. In the past, an IPO would allow everyone to participate in the upside (e.g., 1000%+ growth of the Microsofts and Oracles). Now, the ones reaping the rewards are the private equity groups. By the time they unload companies on the public markets, most of the upside is gone.
Except private financing rounds are incredibly costly long term, and post-IPO you have access to debt financing that is an order of magnitude cheaper. Financing is, after all, just money you pay for money to do things sooner, hopefully to make more money. When you look at it from that angle, you want that money to cost as little as possible. There's a reason revenue is considered the cheapest form of financing, I'd say 6% debt financing is the next cheapest for a large company.
I'm pretty sure debt financing is available to private companies. My wife works in impact investing, they do a number of debt deals and bridge loans to private portfolio companies.
Debt financing is available to everyone, but the question is how much and at what cost? Correct me if I'm wrong, but I am under the impression that the terms are much better for public companies.
Sarbanes-Oxley (SOX)'s primary provisions only apply to publicly-held companies. One survey estimated that the average Fortune 500 company spent $4.1MM on SOX compliance in 2004 alone. Much of the cost of compliance is static, so a domestic company with ~$1BB/yr in revenue and domestic company with $100MM/yr in revenue could both spend $1MM on compliance, even though this represents a much more significant chunk of revenue to the smaller company.
The costs of compliance (both financial and the operational overhead of having controls in place) can be put off by delaying an IPO and the requirement to make public financial statements.
If AirBnB hypothetically decided to never IPO, what incentives does an investor have in investing? Does the private AirBnB need to issue dividends? Genuinely curious about how this would work.
Sell to a later investor in a private financing round. A number of these late-stage rounds include cash-out provisions that apply to early investors as well as founders and employees.
The financial industry has basically taken the public markets private. There's nothing that says that all stock markets must be public, and in fact the history of stock exchanges has several instances of this in the past. The NYSE started out as a direct agreement between 24 brokers in 1792; it was regulated in 1817 to prevent abusive trading, and then grew dramatically in the mid 1800s with the invention of the electric telegraph. By 1865, a number of brokers were getting fed up with regulation, and so they established what became American Stock Exchange by trading stocks on the curb outside the NYSE. It was regulated in 1908. I predict that we're witnessing the birth of another stock market, or maybe it's already been born and I'm not enough of a cool kid to know about it.
> Sell to a later investor in a private financing round.
But what incentives would those later investors have?
Public company stock is valuable because it provides the owner a dividend stream, control of the company as well as ownership of the company's assets; I wonder how an AirBnB, for example, that never went public would provide value to shareholders.
