Last week, at a StrictlyVC event San Francisco, investor-writer Semil Shah interviewed Keith Rabois of Khosla Ventures in a wide-ranging chat. Among the issues raised was why companies are staying private longer, and whether founders, investors and the institutions that finance venture capitalists should be concerned.
Rabois – a former lawyer who’d earlier served as COO of Square, and was an executive at PayPal, LinkedIn, and Slide — didn’t equivocate. He said he thinks companies that delay their public offerings are making a mistake, and he traces the trend to “his PayPal friends” and specifically to PayPal cofounder Peter Thiel.
Said Rabois: “My views are a little bit more like [fellow VC] Bill Gurley’s than Marc Andreessen’s or Peter Thiel’s, [which is] that companies should go public earlier rather than later [for] a variety of reasons. One is that you actually get a lot of cash, and that cash gives you leverage to do things. Secondly, you have a currency, and you have a price on your currency and you can acquire things, which is very difficult to do as a private company.”
Continued Rabois, “Some of the reasons that people don’t want to go public are just excuses. The founder doesn’t want to have scrutiny, doesn’t want transparency.” Other oft-cited reasons that management teams give for pushing off an IPO include concerns over employee retention and flagging morale, said Rabois, who called all of them “bad reasons” not to go public.
As for the common complaint that employees begin obsessively watching their company’s ticker after a public offering, for example, Rabois noted that companies’ shares “go up and down” and that staffers can “get a little miffed and annoyed” by those gyrations. But he added that management can also respond proactively to those swings, saying that they’re ultimately among a long list of “soft things” that affect employee satisfaction.
“If you actually manage people, you know the things that are going to distract the people in your office [are things like] the food you serve,” Rabois told the gathered attendees. “I actually had a revolt [at a former company] because I took away bacon because it’s not good for you. All the engineers barfed [at the move] and I didn’t know why they were all annoyed at me until someone asked a question [about my decision] at a company meeting.”
As for retention, Rabois shared a story about the online review site Yelp, on whose board of directors Rabois served for roughly eight years. (He stepped down in January 2014.)
According to Rabois, Yelp co-founder and CEO Jeremy Stoppelman — who’d worked as an engineer at PayPal earlier in his career — “was very nervous about going public because he’d gotten all this advice from Peter [Thiel] and my PayPal friends,” who had themselves gone through a “searing experience” when PayPal staged its IPO in 2002.
“[PayPal] was one of two companies in technology that went public that year – the other being Netflix – we [filed our S-1] the day after [the terrorist attacks of] 9/11, and people had a lot of emotional reactions to all the things we went through,” said Rabois. “The state of Louisiana suspended us the week before we went public [owing to customer service complaints. We had numerous other issues]. So Peter and other friends of mine started telling everyone that it’s terrible to go public,” and the “Facebook crowd kind of bought into that,” he said.
So have a lot of other entrepreneurs, said Rabois, characterizing today’s accepted wisdom about the dangers of going public as a “derivative sort of consequence” of that “mess.”
It’s a shame, suggested Rabois, who said that once Yelp did go public, in March 2012, it became “the best thing ever for the company. Morale improved, actually, the year before we went public. Retention post going public is significantly better than the two years before going public. I’d argue that innovation [at Yelp] is better. We’ve also been able to acquire a couple of strategic assets, one in Europe, one just last week . . . one maybe could have been done as a private company but the others surely couldn’t have been.”
Said Rabois, “All the most innovative companies on the planet are public. Apple – nobody is more innovative than Apple — Amazon, Google. If you have the right founder, you can innovate. Every other answer is an excuse.”