Local entrepreneurs gathered Wednesday night for the Central Coast MIT Enterprise Forum, “Startup to IPO and Beyond: Can 805’s Winning Streak Last?” Moderated by Tenor founder Matthew Stotts, the distinguished panel featured a keynote speech by Lise Buyer, founder of IPO advising company Class V Group. Three industry experts — AppFolio CFO Ida Kane, Rincon Venture Partners co-founder Jim Andelman, and Inogen CFO and co-founder Alison Bauerlein — also spoke.
The event served as a special opportunity for audience members to learn from the speakers’ experiences and expertise in the world of venture capital investing. More importantly, the speakers discussed how to make the jump from functioning as a private business to being a successful IPO (initial public offering).
An initial public offering is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity, and if the company has never issued equity to the public, it’s known as an IPO. In order to “go public,” a company must meet market requirements to determine legitimacy and strength as a business.
The central coast has been a haven for startup companies in recent years, as individuals seek to establish themselves outside of the glaring lights of the Silicon Valley or Los Angeles. As sporadic as prosperity may sometimes be for startups in Santa Barbara, wildly successful companies like MINDBODY, AppFolio, and CytomX Therapeutics have shown that the area is promising. “Today each company is being valued at more than half a billion dollars by the public markets,” said Stotts.
Recent concern has centered on a perceived “drought” in the nationwide financial markets. However, the central coast has defied odds with the promise of new companies like Inogen, TrackR, and Salty Girl Seafood, all products of UCSB. In this way, Santa Barbara is further proving to be a healthy place to launch and grow startups.
According to Buyer, the current state of affairs and lack of quality IPOs on the market can be attributed to high volatility, poor recent performance, and the JOBS (Jumpstart Our Business Startups) Act. The 2012 national JOBS Act, while forward-thinking in nature, made it easy to create an IPO by lowering the market requirements. Without the necessary barriers, it becomes harder to tell which startups are actually worth the investment and which are “disguised as unicorns.”
As venture capitalists seek out the market “unicorns,” (privately-owned companies valued at over $1 billion) an unpredictable, rugged market leads to more careful investing, because investors are most concerned with their own safety and stability. “After all, investing is all about risk and reward,” said Buyer. “People are starting to realize the emperor, in fact, is buck-naked.”
Recent performance has also been a factor, as massive startups like Uber and Snapchat have underwhelmed the market despite their early, optimistic valuations as “unicorns.” It becomes all the more important that investors and venture capitalists are on the same page and well-educated in order to achieve continued success on the central coast.
The current state of the market looks to be improving as the VIX, (a measure of market volatility) appears to be falling. Private investors are waiting for better candidates, institutional demand is returning, and there is a greater value for going public. As Buyer said, “The logjam is ready to break.”
The speakers also emphasized the importance of regional success. As the central coast continues to excel as a growing base for startups, it is no longer necessary for companies to move to larger cities. Recent major successes include LinkedIn’s acquisition of Lynda.com for $1.5 billion and Red Hat’s acquisition of AnsibleWorks for $100 million — the same amount Hewlett-Packard paid for Eucalyptus Systems in 2014.
Understandably, there may never be a “cure-all” solution for the private and public markets, but it helps to have success stories and people to steer entrepreneurs in the right direction. The next Enterprise Forum, to be held April 20 at the Cabrillo Pavilion Arts Center, focuses on the local craft beer industry and is titled “I’ll Drink to That.”