Uncertain Markets Have Startups Rethinking IPOs

"Gloomy economic forecasts, combined with continuing public-market turbulence and a dearth of venture-capital deal making, may have early-stage startups rethinking their long-term goals. For some, that includes the idea that a blockbuster initial public offering is the ultimate prize for venture-backed companies.

Instead, some startup leaders say their objective is to build a profitable company, stay private and eventually buy out their early backers.

Not all investors are on board with the strategy, though many agree that focusing on profitability is a healthier model than growth for growth's sake -- marking something of a paradigm shift after years of chasing lofty private-market valuations through successive fundraising rounds until it is time to cash out.

"We want to build a strong, profitable company that is efficient where we have control of our destiny," said Almog Koren, founder of DogBase, a two-year-old Tel Aviv startup developing artificial-intelligence software to train and handle working dogs.

Mr. Koren said the IPO route has come to feel like a "shell game," in which investors pump capital into fledgling businesses to boost their value, then cash out via a public-market debut. The upshot of that model, he said, is that many startups have "lost what it means to be a solid business."

Mr. Koren said his strategy to pursue profits, rather than a public listing, predates today's slumping markets. DogBase is currently running on advance-sale revenue, among other sources, and is looking to close a pre-seed round later this year, he said.

In a recent survey of early-stage startup founders by startup accelerator Techstars, fielded earlier this year, just 16% of more than 1,600 respondents said their primary goal was to go public, compared with 28% that wanted to stay private and 36% that wanted to be acquired by a large corporate buyer.

Maelle Gavet, Techstars' chief executive, said many startup founders looking at the current IPO market are deciding that it is simply not the way to go for them. "Good founders are pragmatic and flexible," Ms. Gavet said.

Worldwide, 299 startups had IPOs in the first quarter, down from 321 over the same period last year and 512 in the first quarter of 2021, according to professional services firm Ernst & Young.

To be sure, at some point the market will pick up again, Ms. Gavet said, "and when that happens I expect that a lot of startup founders will reconsider their current opinion and look at an IPO as a viable option."

Jonathan Frazier, co-founder of Trustware.io, a Delaware-based blockchain startup launched last year, said he believes the company can raise the kind of funding it would fetch from an IPO by building sustainable revenue streams with solid unit economics.

"This allows us to take more long-term views when making strategic decisions without external pressures from shareholders who might be aligned with us on stock price but not on mission," Mr. Frazier said.

Beyond that, he said, IPOs aren't the most attractive option right now for U.S.-based blockchain companies -- or their investors -- given the recent regulatory clampdown around cryptocurrency markets and token-based assets.

"Current market conditions in the crypto industry -- often referred to as 'crypto winter' -- have made it more challenging for blockchain companies to raise funds through traditional strategies like IPOs," he said. "This has encouraged our decision to remain a private company so we can focus on generating revenue and building real value for our users."

Like DogBase, Mr. Frazier said Trustware.io is largely self-funded, apart from a $120,000 investment by Techstars earlier this year.

For their part, investors are welcoming a return to sound business practices: "This is a clarion call and a chance to cut the hype, trim spending and return to best practices for lean, long-term growth," said David Blumberg, founder and managing partner of early-stage VC investing firm Blumberg Capital. "Instead of excessive focus on negotiating the highest valuation and top-line growth at all costs, it's more important to demonstrate that your business is robust, resilient and properly resourced," he said.

Todd Rahn, a senior managing director at IPO adviser FTI Consulting, said he isn't surprised that startup founders are looking for alternatives to public market debuts.

"During these cycles in my experience, there is a natural attraction to staying private," Mr. Rahn said.

But while the idea of someday buying out your investors may sound good in theory, Mr. Rahn said, it is another thing in practice: "Even in a positive cash flow and profitable scenario, it would take a substantial amount of time to build the amount of capital needed to buy out investors."

Indeed, relatively few VC-backed companies become cash-flow positive within 10 to 15 years of the initial VC investing, said Jay Ritter, a finance professor at the University of Florida who tracks IPO activity. By contrast, VC funds typically promise exits within 10 years of the fund's formation, with occasional extensions to 12 years, he said." [1]

1. Uncertain Markets Have Startups Rethinking IPOs
Loten, Angus.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 02 May 2023: B.5.

Amerikos „progresyvieji“ nori grįžti į šeštąjį dešimtmetį

"Bideno administracija planuoja esminę Amerikos ekonominės politikos pertvarką šalyje ir užsienyje. Tai yra patarėjo nacionalinio saugumo klausimais Jake'o Sullivano praėjusią savaitę Brukingso institute pasakytos kalbos ištrauka. 

 

Pradinė informacija spaudoje buvo skirta Kinijos politikos niuansams - "rizikos dėl Kinijos apribojimas" dabar madoje, „atsiskyrimas nuo Kinijos“ baigtas, tačiau norint sustoti tik ties tuo, reikia praleisti prasmę. 

 

Tai buvo didelė kalba apie didelius politikos pokyčius, ir tiems, kurie nori suprasti Amerikos politikos kryptį per antrąją Bideno kadenciją, būtų neprotinga nepastebėti tai.

 

     Pertrauka nuo demokratinės prekybos ir ekonomikos politikos po Šaltojo karo yra radikali. Dingo prekybos liberalizavimo, augimo ir į rinką orientuotos reformos akcentai. Administracijos nuomone, ši klaidinga politika yra atsakinga už daugelį šiandien žmoniją kamuojančių nelaimių. Kinijos kilimas, Amerikos viduriniosios klasės erozija, populizmo augimas, klimato kaita ir finansinis nestabilumas yra ydingos ekonominės politikos, kurią propagavo, be kita ko, prezidentas Billas Clintonas ir jo iždo sekretoriai Robertas Rubinas ir Larry Summersas, pasekmės.

 

     Tiek apie senąjį Vašingtono sutarimą, kaip šis politikos derinys buvo vadinamas jo klestėjimo laikais. J. Sullivanas siūlo užimti savo vietą, daugiausia dėmesio skiriant pramonės politikos formavimui, apsaugai nuo Kinijos, Amerikos darbo jėgos gynimui nuo užsienio mažų atlyginimų konkurencijos ir įrankių, pradedant nuo muitų ir baigiant tarptautinėmis finansų institucijomis, naudojimas, siekiant paskatinti pasaulio pietuose esančias šalis prisitaikyti prie klimato kaitos. Vyriausybės darytų daug daugiau, kad nukreiptų kapitalą į pramonės šakas ir rezultatus, kuriems pirmenybę teikia biurokratai ir išrinkti pareigūnai.

 

     Politiniu požiūriu naujasis M. Sullivano sutarimas Vašingtone atspindi trijų demokratinės politikos elementų konvergenciją. Darbo sąjungos nekentė Clintono laikų prekybos politikos, priešinosi Šiaurės Amerikos laisvosios prekybos susitarimui, Pasaulio prekybos organizacijos kūrimui ir Kinijos priėmimui į ją. Jų nuomone, leidimas besivystančioms šalims konkuruoti Amerikos rinkose su mažai apmokama darbo jėga yra „lenktynės į dugną“ – tai, ko J. Sullivanas aiškiai sako, kad naujosios politikos tikslas yra vengti.

 

     Taip pat nerimauja dėl lenktynių į dugną klimato aktyvistai ir atsinaujinančių išteklių lobistai. Skurdžios šalys paprastai taiko mažiau griežtus aplinkosaugos reglamentus pramonei, kad maksimaliai padidintų savo mažų sąnaudų pranašumus. Uždraudus arba nubaudus gaminius, pagamintus, naudojant iškastinį kurą ir kitus daug anglies dioksido išskiriančius metodus, mažas ir vidutines pajamas gaunančias šalis situacija priverstų imtis klimato politikos, kurios kitu atveju jos galėtų vengti.

 

     Lobistams administracijos požiūris tiesiogine prasme reiškia trilijonus dolerių verslo galimybių, nes tarptautinė prekybos politika skatina mažas pajamas gaunančias šalis perimti produktus ir technologijas, kurios yra atsinaujinančios energijos lobistų vanagų tikslas.

 

     Galiausiai, daugelis vadinamųjų progresyviųjų ir demokratinių socialistų trokšta grįžti prie santykinai uždarų ir labai reguliuojamų nacionalinių ekonomikų sistemos, kuri buvo būdinga iškart po Antrojo pasaulinio karo. Integruotų pasaulinių finansų rinkų atsiradimas ir prekybos liberalizavimas pakirto nacionalinių vyriausybių galimybę kontroliuoti ekonomines sąlygas savo sienų viduje. Naujuoju p. Sullivano sutarimu siekiama nustatyti pasaulines finansines taisykles ir mokesčių politiką, kuri padėtų nacionalinių vyriausybių galimybėms grįžti prie griežtos šeštojo dešimtmečio reguliavimo politikos.

 

     Bideno požiūris yra politiškai gudrus, patrauklus mėlyniesiems demokratams, taip pat žaliesiems ir progresyviems. Daugelis generalinių direktorių, kad ir kaip abejotų dėl augančios vyriausybės įtakos ekonomikai ilgalaikių pasekmių, Bideno stiliaus ekonominio aktyvizmo siūlomose subsidijose pamatys galimybę.

 

     Kaip neseniai pabrėžė mano kolega Josephas Sternbergas, daugelis europiečių piktinasi protekcionistinėmis subsidijomis,  su lozungu: "pirmiausia Amerika", įtrauktomis į klaidinančiai pavadintą Infliacijos mažinimo aktą. 

 

Tačiau protinga Europos nuomonė supranta, kad ilgainiui naujasis Vašingtono sutarimas bus Dievo dovana Briuseliui. Daugelis demokratų jau seniai norėjo, kad Amerikos socialinė ir ekonominė politika taptų europietiškesnė. Kaip tik tai ir siekiama nauja Bideno ekonomikos politika. Jį geriau būtų pavadinti Briuselio konsensusu, nes administracijos priimtas žaliojo aktyvizmo, valstybės planavimo ir darbo protekcionizmo mišinys atspindi klasikines Europos Sąjungos pažiūras.

 

     Žinoma, yra klausimų. Ar biurokratai gali sukurti puikius pramonės ir technologijų augimo planus, kurie veikia geriau, nei rinkos? Ar politika, kuri nesugebėjo užtikrinti socialinės taikos tokiose šalyse kaip Prancūzija, blokuos Trumpo populizmą JAV? Per pastaruosius 20 metų Amerikos ekonomikos augimas gerokai lenkė ES. Ar Amerikos ekonominės politikos pritaikymas prie lėto augimo ES modelio padės Vakarams žengti koja kojon su Kinija? Ar daromas spaudimas mažas ir vidutines pajamas gaunančioms šalims priimti brangesnę energetikos politiką, tuo pačiu sumažinant jų galimybes gauti kapitalą iš mažos darbo jėgos kainos gali padėti Vakarams rasti sąjungininkų už Septynių grupės ribų?

 

     Bideno požiūris yra mažiau naujovių, nei nostalgija. Jame mažai kas nustebintų Walterį Mondale'ą. Tačiau, norėdami veiksmingai pasipriešinti Bidenizmui, rinką palaikantys demokratai ir respublikonai turės padaryti daugiau, nei tetervinti dėl etatizmo ir bičiulių kapitalizmo, įterpto į administracijos požiūrį. Jie turi plėtoti vidaus ir tarptautinę ekonominę politiką, kuri būtų panašiai gudri politiškai ir labiau tikėtina, kad pasiteisins ekonomiškai." [1]

1. 'Progressives' Want to Go Back to the 1950s
Walter Russell Mead.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 02 May 2023: A.15.   

American 'Progressives' Want to Go Back to the 1950s

"The Biden administration plans a fundamental transformation of American economic policy at home and abroad. That's the takeaway from national security adviser Jake Sullivan's speech at the Brookings Institution last week. Initial press coverage focused on the nuances of China policy -- "derisking" is in, "decoupling" is out -- but to stop there is to miss the point. This was a big speech about major policy changes, and those who want to understand the direction of American policy in a second Biden term would be unwise to overlook it.

The break with post-Cold War Democratic trade and economic policy is radical. Gone are the emphases on trade liberalization, growth and market-oriented reform. Those misguided policies, in the administration's view, are responsible for many of the ills afflicting humanity today. China's ascent, the erosion of the American middle class, the rise of populism, climate change and financial instability are the consequences of the flawed economic policies promoted by, among others, President Bill Clinton and his Treasury secretaries, Robert Rubin and Larry Summers.

So much for the old Washington consensus, as this policy mix was called in its heyday. What Mr. Sullivan proposes to take its place focuses on shaping industrial policy, protecting against China, defending American labor from foreign low-wage competition, and using tools ranging from tariffs to international financial institutions to push countries in the Global South to meet climate-change goals. Governments would do much more to direct capital toward the industries and outcomes bureaucrats and elected officials prefer.

Politically, Mr. Sullivan's new Washington consensus reflects the convergence of three elements of Democratic politics. Labor unions hated Clinton-era trade policy, opposing the North American Free Trade Agreement, the formation of the World Trade Organization and China's admission into it. In their view, allowing developing countries to compete in American markets with low-wage labor constitutes a "race to the bottom" -- something Mr. Sullivan explicitly says the new policy is designed to avoid.

Also worried about races to the bottom are climate activists and renewables lobbyists. Poor countries typically impose less-onerous environmental regulations on industry to maximize their cost advantages. Banning or penalizing products made with fossil fuels and other carbon-intensive methods would force low- and middle-income countries toward climate policies they might otherwise avoid.

For lobbyists, the administration's approach means literally trillions of dollars in business opportunities as international trade policy drives low-income countries to adopt products and technologies the renewables lobby hawks.

Finally, many so-called progressives and democratic socialists yearn to return to the system of relatively closed and highly regulated national economies that characterized the immediate post-World War II era. The rise of integrated global financial markets and trade liberalization undermined national governments' ability to control economic conditions inside their frontiers. Mr. Sullivan's new consensus seeks to establish global financial rules and tax policies that would support national governments' ability to return to the strong regulatory policies of the 1950s.

The Biden approach is politically shrewd, appealing to blue-collar Democrats as well as greens and progressives. Many CEOs, however dubious they are about the long-term consequences of growing government influence over the economy, will see opportunity in the subsidies Biden-style economic activism offers.

As my colleague Joseph Sternberg recently pointed out, many Europeans resent the protectionist America-first subsidies built into the misleadingly titled Inflation Reduction Act. But smart European opinion understands that in the long run the new Washington consensus will be a godsend to Brussels. Many Democrats have long wanted American social and economic policy to become more European. That is exactly what Mr. Biden's new economic policy aims to deliver. It might better be called the Brussels consensus as the mix of green activism, state planning and labor protectionism the administration embraces reflects classic European Union views.

There are, of course, questions. Can bureaucrats generate brilliant plans for industrial and technological growth that work better than markets? Will policies that failed to bring social peace in countries like France block Trumpian populism in the U.S.? Over the past 20 years, American economic growth has substantially outpaced that of the EU. Will conforming American economic policy to the model of the slow-growth EU help the West keep pace with China? Will pressuring low- and middle-income countries to adopt more expensive energy policies while blunting their ability to capitalize on low labor costs help the West find allies beyond the Group of Seven?

The Biden approach is less innovation than nostalgia. There is little in it that would surprise Walter Mondale. But to oppose Bidenism effectively, pro-market Democrats and Republicans will have to do more than grouse about the statism and crony capitalism embedded in the administration's approach. They need to develop domestic and international economic policies that are equally shrewd politically -- and more likely to work." [1]

1. 'Progressives' Want to Go Back to the 1950s
Walter Russell Mead.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 02 May 2023: A.15.