Snapchat filed for their S-1 for their upcoming IPO. To get to an IPO is an amazing milestone in a startup’s journey. It provides for liquidity for all stake holders - founders, employees, investors. It is a lot of public recognition and scrutiny for the quality of the business and its future prospects. You enable customers to take part not only in enjoying your product but also in the growth of your company.

There are two classes of modern companies and founders. Those are building a great business and willing to go public as soon as possible. And then there are those that are deferring their IPO's for business or capital reasons. The focus of this post is the modern day IPO story. For this, I decided to dig in and study out some marquee IPOs over the last few decades. I’ve tried to pick couple of companies from each era and compared them.

The rate of pace of technology adoption continues to drop due to improvement in distribution and increase in per capita GDP of the world. It took Microsoft Windows 25 years to get to a Billion users. Whatsapp got there in 7 years and Snapchat is close at 161M Daily Actives which would be close to 400-500M MAUs.

Here are some observations:

Company and Founder Age:

It appears that fortune favours the brave and the young. Many of these pathbreaking companies and their now iconic founders were in the twenties to early thirties at the time of the IPO. Also, the time from founding to IPO for most of them appears to be well under a decade. Coupled with the increased pace of technology adoption and global distribution, this means that most companies that scale, do it fast!

Availability of large, late stage capital

Twitter, Facebook and now Snapchat have cumulatively raised about $5.6B dollars pre-IPO. This does not include some blockbuster names like Uber, AirBNB, Xiaomi, Flipkart and others that have raised billions of dollars of capital and are not imminently going public.

Compare this to Google which had raised only $36M before going public. Not only that, Google had annual revenue of $2.7B at the time of their IPO. For every dollar of capital raised, they were generating $75 of revenue. That's astounding. In the new age companies, though Facebook had raised a lot of capital, they were equally impressive with the revenue growth.

One of-a-kind companies with terrific business models don't need to raise a lot of capital.

As we will see later, this is not only good for the business but its fantastic for the founders, employees and investors (current and future). This is why Bill Gates is still the richest man in the world!

Company Size and Revenue

Clearly, the most meteoric rise in both employees and the revenue have been for Amazon, and possibly Apple. Of course, Apple is the tale of a company of with several "lives". It was not possible to cover all the parameters for this exercise. However, in terms of profitability (not on the chart), Google, Facebook and Apple would be right up there.

I have argued in the past that the culture of the company gets built in the first year or so. The IPO of a company forces a great deal of rigour and discipline to the company. It would be interesting to explore the impact of an IPO on company culture - hiring, performance, compensation, risk taking ability, etc.

Wealth creation

The more money you raise earlier, the more you dilute earlier. Of course, it helps you go to market faster, etc. In companies that go IPO with the "right" sized amount of capital, the founders and the company employees maintain significant equity in their venture post IPO. Of course, while they have ownership and liquidity, that also means they are subject to execution and market risks. In companies go IPO "late" and raise a lot of money pre-IPO, the VC (and/or other equity) investors get to partake in more of the wealth creation. A good example would be say, Twitter.

In companies that go IPO earlier or with lesser capital raised, they provide an opportunity both for not just venture but also other retail and institutional investors. Great examples here would be companies like Microsoft and Apple. The best companies are ones that have generated handsome returns for themselves and their investors, both pre- and post IPO. Those are a rare breed. The one that shines in this millennium is clearly Google.

Is $SNAP going to be one of them?

About the Author -

(Amit Somani is a Managing Partner at Prime Venture Partners, an early stage Venture Capital firm based out of Bangalore, India. Prime VP invests in category creating, early stage companies founded by rock star teams. Prior, Amit has held leadership positions at Makemytrip, Google and IBM. He is also deeply engaged with the early stage startup ecosystem in India and actively volunteers with iSpirt, TiE and NASSCOM. He tweets at @amitsomani)

This article was originally published on Linkedin