a16z Podcast - The What, Who, and When with IPOs

Episode Date: January 29, 2024

In 2022 and 2023, US IPOs hit decade lows after the record high of 2021. Now, in 2024, will the IPO window reopen?In this episode, we revisit a conversation with Jeff Jordan, former CEO of OpenTable, and J.D. Moriarty, the former Head Managing Director and Head of Equity Capital Markets at Bank of America Merrill Lynch.Joined by Sonal Choksi, the pair takes you behind the scenes to unravel the complexities surrounding IPOs, including pricing, allocations, and the elusive "pop." They also discuss OpenTable’s IPO, which occurred immediately following the worst financial crisis since the Great Depression, and weigh in on the question: Can you time an IPO in an unpredictable year? Resources:Find Jeff on Twitter: https://twitter.com/jeff_jordanFind J.D on LinkedIn: https://www.linkedin.com/in/jdmoriartyFind Sonal on Twitter: https://twitter.com/smc90 Stay Updated: Find a16z on Twitter: https://twitter.com/a16zFind a16z on LinkedIn: https://www.linkedin.com/company/a16zSubscribe on your favorite podcast app: https://a16z.simplecast.com/Follow our host: https://twitter.com/stephsmithioPlease note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures.

We think we're a good company and we think we can perform in the market. We wanted to meet bankers ahead of time. And how far in advance did you do that? Hey, why do we need to go see all these investors? Can't we just do a $35 million IPO to four or five folks? You can't time the market because it's clearly a long process. Am I the kind of person who overhypes and under delivers or do I under hype and over deliver? How big does your IPO need to be?

What does your market cap need to be? How big do the proceeds need to be? Tell me the truth. Did you guys have like a magic number in your head before you start those pricing discussions? Now you're just like, it's in every new. newspaper, the business section in America, we're going public today. Now we're not going public to do. Initial public offerings or IPOs are one of the few ways that startups can experience a liquidity event. And looking back on 2022 and 2023, the U.S. stock market IPOs fell to decade lows,

with 181 and 154 IPOs respectively. For comparison, the all-time record was established just the year prior in 2021 at 1,035 IPOs. So as we headed to 2024, with many people speculating whether the IPO window will reopen, we actually wanted to revisit an important conversation with ACC-Z General Partner, Jeff Jordan, and J.D. Moriarty, around the OpenTable IPO, which actually happened immediately following what was the worst financial crisis since the Great Depression. having led OpenTables IPO as CEO in 2008, as well as being on the board of multiple publicly listed companies since, Jeff has had first-hand experience into the world of IPOs. Meanwhile, J.D. Moriarty is the former head managing director and head of equity capital markets at Bank of America, Merrill Lynch.

For his time at Bank of America, J.D. worked on numerous IPOs, including Open Tables, alongside then-CEO, Jeff. Today, the Paris conversation from 2017 actually feels as relevant as ever. Together, they go behind the scenes with Sonaloxi to really unravel the complexities surrounding IPOs, exploring the decisions that can shape the fate of companies, like the gymnastics of setting a price, the mysteries behind allocations and the elusive pop,

and they even go into how boards and company employees should be involved throughout the entire process. And above all, leading into a surely unpredictable year, they weigh in on whether there really is such a thing as IPO timing. All right, I hope you enjoy this episode, and let's see where 20204 takes us. As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security,

and is not directed at any investors or potential investors in any A16C fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16C.com slash disclosures. Hi, everyone. Welcome to the A6NZ podcast. I'm Sonal. Today we're doing one of our War Stories Podcasts, where we have founders, makers, and operators share the story behind the story. And joining us for this episode, we have A6NC General Partner Jeff Jordan, who was president of PayPal at eBay before going to online restaurant reservation network OpenTable, where, as a CEO, he oversaw the company going public.

We're going to talk about all that in this episode, focusing on everything from the relationship building involved on the road to IPO and the nuances of pricing and allocations to the broader market context and some concrete advice for entrepreneurs. And last but not least, we have special guest, J.D. Moriarty joining this conversation. He's now SVP of Corp Dev at Lending Tree, but was formerly managing director and head of equity capital markets at Bank of America, Merrill Lynch. J.D. was the lead banker, the capital markets expert from Merrill Lynch on the Open Table IPO. He and Harry Wagner of Allen and Company were the two keys who basically helped execute a deal in about the worst capital market situation.

When was that? Late 2008, early 2009. A venture-backed technology firm had not gone public in a couple of years. The concern was that the window was closed, bricked over, and the only exit path for tech companies was going to be M&A from that then on. we ended up pricing at the nadir of the worst financial crisis since the Great Depression. I used to talk about 200 IPOs a year. And the only IPO prior to OpenTable in 2009 was a company called Meade Johnson, so a very defensive company, the type of thing that should go out in 2009 in consumer products. They made like the floor wax or something, right?

Yeah, exactly. Very far from this weird thing called OpenTable, which is not even a product you can physically touch. Correct. And so, you know, people tend to look at when an IPO prices and you have to run. recognize that most companies take six to eight months to get there from our org meeting to kick off the process where the bankers and the management team begin the process of preparation or pricing was about eight months. I have to ask a really dumb question. Why do you need a bank? Why can't you just directly IPO? Actually, at one point, Jeff asked me early in the process,

hey, why do we need to go see all these investors? Can't we just do a $35 million IPO to four or five folks? I think the way to think about the IPO process is you're not just doing the IPO. You have to take a two-year view towards how do we get this to be a stable public company that can grow and achieve not only the company's goals, but the goals of the early investors with regard to monetization over a long period of time. And oftentimes, as this deal showed, those goals are different. It is an interesting observation is going public does not create liquidity. All the insiders cannot trade when you go public. Why is that? Well, a standard expectation that the new public investors taking a chance on this new company is a 108-day lock-up.

That is kind of a market standard. There are certainly exceptions to that. And we can talk about things like the IPO discount, et cetera. But in order for somebody to take the risk of a newly public company, they expect certain things. Now, there are plenty of IPOs that have secondary shares. Don't misunderstand. But the early investors are locking up for 180 days.

There is a period of time when the right way to think about it is your true monetization. is really down the road. Yeah, and so if when the 180-day lockup expires, all the insiders and all the management team run to the floor of the stock exchange and try to sell all their stock, all the third party, all the owners will disappear too because if the insiders don't have any competence in it,

then why should I own it? I mean, just to give a little bit of a counterpoint that obviously market conditions change, the company hasn't gone public in like 10 years and you have to get some liquidity out or you're a founder who has to give up a little bit of shares in the secondary market in order to, you know,

loosen up your, we're supportive of that. But if they try to get full liquidity on day 181, the stock price is going to be like $2. It's a reality where the market works. We're talking about the technicals of how does that stock get to market. There's another part of this, which is simply, when do you time the IPO? Fundamentally, we encourage people to don't think about the market conditions today. Think about, is this a good public business? Yeah. And you have to answer that question first. And for most companies, you never go to time the market. You can't time the market because it's clearly a long process. But then why do people talk so much about there being certain windows in which there is an ideal time, you know, like a window can open and shut? And this is

on the global scale of 10 years, 15 years, etc. This was actually, there's a case on the open table IPO. It's at Stanford Business School now taught in information in new ventures class. Andy Ratcliffe wrote it. And it basically says, should open table go public now? The analysis said there are windows in the IPOs. Yeah, they kind of come and go. And the best companies often open windows that were then previously closed. So the best companies can go out whenever they want. The good companies typically want to wait until the investors are feeling good. The mediocre and bad companies want to get out whenever they can.

And what happens is when the window opens, the early people to go out, typically perform very well as public company stocks. And then as more time goes by and you get towards the end of a window, the companies that then are going out, kind of rushing, I got to get out or I'm going to miss it, are typically are not the highest quality companies, and they tend to underperform the market. One of the things that had us go was, okay, we think we're a good company and we think we can perform in the market. We wanted to meet bankers ahead of time. And how far in advance did you do that? We started about a year and a half out or something like that. A year and a half?

Just surgically. Just every, you know, with the bankers, we, we kind of orchestrated into one or two conversations. But before we did the formal bakeoff, where you select your lead bank and all due respect to Merrill at the time, they were, you know, they were not the top. of the pyramid in terms of tech bankers. So we, because we were the only IPO, we had every bank wanted to do it. Goldman, Morgan, you know, just to down the list. We got to know the people at the firm. And we put particular value in the capital markets function because that is the function

that interacts between the company and the investors. We wanted someone who we thought understood our business well and we thought could represent our business well to investors. And by investors, just for clarity, you mean investors like institutional investors? These are institutional investors who invest in public security. Typically, the largest ones are mutual funds, managing billions and, you know, billions of dollars. We were looking for 10 poll investors who would go for a while. And we'd meet with them every six months or so.

And they got to know the business. They got to know us. We developed a soft track record because they'd say the first meeting, what are you going to do in revenue this year? Oh, we're going to do $70 million. And you come back six months later. What did you do? Oh, you mean like a soft track record of delivering results? It's almost like quarterly reportings, but they're like informal verbally.

Am I the kind of person who overhypes and under delivers or do I under hype and over deliver? Do I tell them what's good about the business and what's bad about the business? That is such a golden nugget because it's invisible to the world. When you see the outcome, the process behind the outcome is invisible, which is the whole reason I'm doing this. I didn't know that. Why does that relationship that with the capital markets expertise matter so much in the lead-up to the IPO? We wanted it to be not a black box. One of the things other CEOs had told me who had done IPOs when I reached out is like somehow, you know, you do this road show, you get to the pricing meeting, they say, okay, we recommend the price is this and then the shares just magically disappear. And we really cared about who got the share. So we wanted to have a vote in who got it, who got the shares. And because it was such a tiny offering, we wanted to concentrate the shares in that short list at a much higher level than what's typical.

at the pricing meeting, you know, J.D. shared the spreadsheet. And we're like, no, no, no, no, no, we have to give these guys 10 times more. And he's going, no, no, no, no, no. So who voted in the, it was like, you know, the bank. Well, typically, to Merrill's credit, typically the bank pretty much decides, they engaged in a dialogue with us. And that's probably the biggest thing where we met in the middle of said, okay, I understand your rationale. But so we had this very constructive dialogue around that. In many IPOs, that dialogue does not happen. That is such an artful behind the scenes orchestration. It's all a hangover from the 99, 2000 period when those allocations were truly a black box. And somebody said to me at one point, is there any innovation in the IPO

market? And I said, the biggest change over the last 10 years is that it's become more transparent. And that is more the norm today that there's a genuine conversation around it. Now, I've seen the other side of it, which is the management team says, no, it's going to be like this. Ultimately, their vote is the vote that matters. Right. But I've seen the scenarios where they make mistakes there, too. What the Open Table team did well is actually invest in not just the bankers, but actually the investors. The thought process was the better they know our business.

These are the people who are going to have skin in the game and really own enough of our stock. Hold the tent up. And know where the business can go and hold the tent up in a difficult time. And so Jeff essentially invested in that process. And I think it was critical. One of the debates we had was size of IPO. Like the amount of the initial public offering?

Yeah. And so we spend a lot of time doing analytics for companies on how big does your IPO need to be. What does your market cap need to be? How big do the proceeds need to be? And if you imper, if you just sort of look, it doesn't pass the common sense test, right? Why does some portfolio manager at Fidelity who manages billions and billions of dollars invest in the open table IPO when the initial proceeds are only going to be $37 million? Now, ultimately, because it went well, we ended up raising just shy of $70 in the IPO. And then in September, we ended up doing a follow-on transaction. transaction that was $210 million. But the point was, why is it worth it to Fidelity? Morgan Stanley Investment Management Management. So why is it? I want to know. Because if you invest the time to let them see where the business can go over time, they're going to leg into their position over time.

You know, if we had been, we were in a lousy market, one expression we always use is in difficult times our investor clients focus on the things they own, not those things that we want to show them. What do you mean by that? Meaning new ideas. So it's just a risk curve issue. And Jeff made the point about great, great companies being able to go out in any market. Yeah.

Good and okay companies need to pay more attention to the investor risk curve. Back to the notion of pricing. We had Lawrence Levy, who was a former CFO of Pixar on this podcast, and he's the one who helped Steve Jobs take Pixar public. And one of the things that he talked about how it was the biggest fight between him and Steve. And the reason was because, of course, he wanted to go high because he wanted a big-ass IPO, like Netscape at the time. And he was on the heels of that.

And Lawrence was like, no, no, you want to deliver some returns for the investors. and there's sort of this sort of dance back and forth. How did you guys kind of do that dance? Yeah. A lot of discussion. Is that a euphemism for fighting? No, no, no, no. There's a lot of discussion.

You know, our at IPO market cap was $450 million, roughly. Raising, raising proceeds of just under 70. The IPO size was 70 million. Now, I'll be the first to admit, did it trade kind of too well? Yes. So why is that bad if it trades too well? It's too much of a pop. It means that company, company does.

didn't get as much money as they could have if they had a crystal ball. Right. Because the whole point is to get capital to continue growing and building your business. You don't want to leave a lot of money on the table. Now, to be clear, when you end up floating a small amount of the business, you kind of compound this problem. What is that? Go back to the point around the Fidelity and T. Rowe's needing larger position sizes. They recognize that the two events that they care about are the distribution of shares at IPO, the allocations, which we went back and forth on, and the, uh,

first day of trading. And then these stocks become very, very illiquid. And they're in the public market. How did they become illiquid? Because the float is only $70 million. And we convince people that it was an interesting stock to buy and hold. That meant we had no daily trading volume. So if the stock was trading around $30 a share, there were days when it was trading literally 2,000 shares, 2,500 shares. Not many people moving money. Correct. And so you can get these huge gaps. So it did trade, quote, too well. Yeah. That's a balance that We're always trying to stretch. So from your perspective, Jeff.

Yeah, I know. So when we, the original documents had a $12 to $14 price range. I think we updated it to 16 to 18 over the course of the road show because the road show was going well. The first two investors said, I want a full allocation. So it quickly became a hot IPO. We ended up being oversubscribed 20 to 1, 25 to 1, something like that. So we probably could have run it up into the mid 20s easily. But you guys priced it at.

We talked to the market to 22. Yeah. And we priced it 20. And most management teams, board CEOs are going to grasp for that last dollar. I think the open table team collectively was very thoughtful about the fact that this is just the IPO. I care about the next two years. Did you guys, tell me the truth, did you guys have like a magic number in your head before you started those pricing discussions? Like, did you think in your head, you know what?

When I go to sleep at night, I want $25 when the sink goes on the market. No, you didn't. Part of what our strategy was we're going to do a teeny little IPO. and then if it went well, we're going to do a pretty big secondary. And so the company was much more focused on make the secondary successful than it was make the IPO successful. Part of making the secondary offers successful is you need a couple deep pocket people in the IPO, even though it was a teen little IPO. So one of our leading shareholders ended up being Will Danoff of Fidelity. And so we say, Will, invest out of your $10 billion, whatever it is fund, $4 million.

And he's like, I don't have the time to read your earnings release at that level. But we convinced him to come in because then in the secondary, he was able to back up the truck. And he got what he wanted, which was a large ownership allocation. His IPO allocation was, what, 5% of $70 to $4 million. Some number like that. Yeah. And one of the things that made the add-on so much easier is because everybody knew that we could have priced well above $20.

When we priced at 20, that I think built some real goodwill between the management team and the investors. That you guys were willing to be thoughtful about the long term. And we ended up optimizing for who got the shares, not the price they got the shares at. And I would do that again in a second. I'd advise management teams to do it like crazy because as a CEO managing a public company, you don't want people who are in and out on momentum, hot money, because you spend then all your time, literally marketing to new investors, please buy my shares. There are multiple reasons to want a small, from my perspective,

to want a small handful of 10 pole investors who buy and hold your stock. One is they buy and hold. The other is it just makes your life easier. Because you only like talking to a pool of, like, four or five people. Yeah, I've got a handful of owners. And most of them, I actually said, how do you want me to work with you? You own a lot of my share. Do you want me to call you after every earnings call?

And they're like, no, I'll listen to call. Almost all of them were just like, nope, I'll reach out if I need anything. Thank you very much. In the first year and a half, there was a period where we dealt with the momentum. crowd coming into the stock late and it was challenging because we essentially went from you know the projected keep in mind when we're going public in 2009 the projected top line growth in the business was 20% from an analyst perspective right just under 16 to 20 depending on what the analyst it was always a high margin business and then it was when you went to 40% top line and 40%

margin that's when every momentum investor came in and so that was one of the things I think became more challenging to manage. Yeah, I mean momentum investors. You mean like hedge fund people? Not just hedge funds, but in many cases it is. That's a broad stroke. Ultimately, they're investors who just care that you're going to beat the quarter. Yeah.

I mean, it was so interesting because there were a handful of investors before the IPO who were tracking the business. So I was told that Fidelity, Will does not do IPO pitch meetings. Will walks into the meeting and spent the whole 60 minutes there. Dennis Lynch at Morgan Stanley does not do IPO meetings. Dennis was early. He was waiting for us when we got there. You've got those who you're like, okay, they've done their homework.

They get it. Network effects, everything else. Dennis can tell you what three private companies he wants an IPO allocation in today for five years from now. They have a strategy. The other guys, you've just blown away six quarters and said, oh my God, I need to latch on to that sucker. It's like, where were you when it was 20? You're buying it 110 now. They're the guy that will jump in, but they also jump out.

That's when stock's refault. Tell me about any behind the scenes. fights or discussions that you had with your team? Like, were there disagreements? I mean, you're saying this, but were there parts where you guys were like, we can't agree on the pricing that these guys are discussing with us. We can't agree on the timing. Not a ton.

The board gets involved at a few steps along the way. One is I involved them in the selection of bankers. They were there. Is that a best practice that you advise that people should actually involve their board in that? We did a bake-off. We had like six people and we tried to do wisdoms of crowds. No one was allowed to say who they liked and didn't like. And we got a ranking one to six.

And it was unanimous. We did a subgroup that went deeper than the rest of the board of the IBO committee. Then the board also gets involved in things like, okay, do you launch the road show and what's the price? Almost all of the decisions. The process is being run by the management team. And so in our case, it was CFO, Matt Roberts, and myself, and we insulated the entire rest of the company from it. Wait, so you did not involve the rest of the company. They're back in San Francisco building a business.

We're spending two and a half weeks running around the country. Is that typical? Is that the CEO and the CFO that you typically want in the room? And in fact, one of the mistakes that we see companies make periodically is, one, building employee expectations towards an IPO too early and two involving too many people. If you think about it, one of the things that larger companies, private equity-backed companies tend to do well is they value that, they value the option value. They get themselves ready to go. But guess what? They've also got more resources at the company to do that. Can you break down what you mean back? option value? That's a very loaded. Those are two very loaded phrases in our business.

The preparation phase. Yeah. And with venture back companies, I think you have to be mindful and the boards are mindful of the distraction that you can create through the IPO process. Right. And so what Jeff and Matt did was say, you know what, this is going to be born by us. Everybody else do their job. Everybody else was focused on doing their job and managing the business. Go back to when we were talking about the odds of it being a lousy market that we might say, you know what, this is not our year to go. We're there. So it would have been a huge distraction. One of the things we haven't talked about is that, you know, in a lot of cases,

the IPO involve novel technologies that are not familiar to the market and you're essentially selling a new way of doing things. Now it's very familiar to us to actually book our reservations online. But how do you think about involving other key like technical people to help sort of educate? Or is that the CEO or the CFO? Don't you feel frustrated as a founder that my CFO can't represent this that well? I had a very good CFO. Matt Roberts did a fantastic job.

He actually was the one who orchestrated almost all the IPO till the roadshow. But if your CFO can't tell the story, you need to. a new CFO. Well, that's what I'm asking, because honestly, when I think of a CFO, no offense, to all the CFOs out there, I think of numbered people who are just sitting there with, like, spreadsheet. Different CFOs can have different styles. They just had, the investor has to trust them. And then that's what the investor is looking at. There's a CFO telling me the truth, know what's going on in the business and how does that play? There's one thing that you're like, I want every CFO to have this from both of your

perspective. Integrity. Attention to detail. That's true. The market was at the IPO. My mom with her like 15 snapshot shares once that too. I mean, we all went on. We often ran into management teams that wanted to have too many people on the road. Three people, sort of the outer number. Who is the third, by the way, when it is not the CFO? It depends on the business. To your point around technology, periodically, if it's a highly technical business,

you might suggest you have that person there for Q&A, but you don't want to have the distraction. You want to have dialogue. Most investors expect CEO, CFO dialogue. So when you get to the CFO question, we can tell which teams are going to need a lot of preparation. And it's seldom both CEO and CFO. And then we just, we hit them with questions. These are the types of questions you're going to.

It was the CEO in my case. He just doesn't want to say it. You're in a different city every night. You're doing like seven meetings a day, hour long meetings a day. And the thing they stress more than anything is give exactly the same presentation and answer every question exactly the same because regulation FD, fair disclosure. Literally, they said, no, no, no, no, don't be playing around with giving that slide two different ways.

You give that slide one way. You're like a robot. We did it 42 times in like two weeks. Oh, my God. We're really tired of hearing your own voice. Yeah, I can imagine. I'm not sure I want to work with you. Yeah, oh, it's unbelievable.

One really helpful thing is the open table core customer included bankers living in New York, Boston. Earlier in my career at eBay, none of those owners would use eBay. Unless they happen to be collecting something because, you know, time is much more valuable to me than money. and eBay was a cost-saving thing. It strikes me that that's actually one of the challenges, because OpenTable is the consumer business, it's one of the challenges of enterprise-facing businesses and especially SaaS businesses

where the financial models also not as familiar for people to talk about. So I want to talk about the bumps in the road now and the unexpected things that happen. I mean, there's a lot of doing it in the road up to the IPO, a lot of prep, clearly. But despite all your hard work, unexpected shit happens.

It happens in everyone. I wasn't at eBay at the time, but I believe Amazon launched their auction competitor on during the either the IPO and the secondary and Yahoo launched their auction competitor on the other one. We had two big ones. One is we got our obligatory patent troll lawsuit that happened while we're in the road. They wait till they're on the road point of maximum leverage and file. They can get the money and get you out of the way. I get the call. Probably you saying, oh, by the way, you just got served. You're like, oh. So that was one. The other one was a little more

self-inflicted. It turned out no one had done an IPO for a long time, including the SEC, our accountants, and our attorneys. And our attorneys at the last minute update the filing. You know, it's very formal. They update the filing the night before and the SEC gets it and they say, this is approved and you're ready to sell the next morning. So after a bottle of wine that night, when I got a price, we're trading the next morning and I wake up a little early for like 3 a.m. I mean, you're just wired. Go to the gym. I'm working out. I open up my smartphone and see. Is that a blackberry at the time? It probably was a blackberry at the time, because this was 2009. Offering on hold.

What happened? Turned out the attorneys had, when they did the last turn, had attached the wrong attachments. The SEC had proved something that we actually knew was erroneous. And so if we started trading an erroneous document, there's a chance. The SEC could say, no, no, no, no, you have to unwind all those trades. Go start over. Now you're just like, it's in every newspaper, a business section in America. America, we're going public today.

Now we're not going public. Well, what did you guys do? Our attorneys sort of start, all the attorneys on the deal. We just start trying to get the SEC on the phone. And so we ended up delaying the opening. Finally, right as the market opened is the SEC's, oh, no, you're blessed again. And so then started trading an hour or two later. But we did have a delayed open.

Yep. We had a significantly delayed open. Not unlike Facebook's delayed open, just a different outcome. So it just like went at like 10 a.m. instead of 7 a.m. Yeah. If you're on the New York Stock Exchange, you'll typically open closer to the 930 start. And on NASDAQ, they always have somewhat delayed windows. We were very delayed.

And that is a case where time is literally money. It's like ticking away. Now, you know, I'm obsessed with Hamilton. We both are. One song says, he walks the length of the city. They have me show up about half hour after trading has started. So I don't walk into a potential disaster. That's like four or five miles, you know, just through the city.

It starts trading well. He goes, you're in good shape. You can go home. And so I walk back. And then I walked across. And then I watched it. It's like, oh, my God. What about the whole ring the bell thing?

Didn't you guys want to like be there sort of doing that whole thing? We didn't end up having it the same. We had delayed. Yeah, we had, yeah. Okay. Which is, by the way, is the weirdest thing because it's a sound stage on Times Square. That's amazing. Okay.

Wrap up and takeaways. Relationships matter. Timing matters. But while I understand your earlier point that you can't time the market itself, the context, a broader environment does matter. And how do you sort of look at back then? That was 2009. And now, 2017, it's eight years later.

What are some of your reviews on how IPOs have changed? given this context. So a couple of the things that are big takeaways from the open team have actually been somewhat formalized in the market. And so one of my big takeaways from this transaction was what the team did well was invest in the process, be ready to go. They valued the option value of being ready. They invested in that and then were able to respond to an open window essentially. The other thing that Jeff highlighted was spending time with the public investors long before that 45-minute to an hour-long meeting when you're on the road. Yep.

Well, post the Jobs Act, that second part has been somewhat formalized. You can do that more easily today. It's called testing the waters meetings. Now, some management teams probably place too much value on it. To your point, you weren't going and meeting with a cast of thousands. You were meeting with a narrow group of believers. A dozen, yeah. Right.

And so what I tell people is, beyond a certain number, you hit diminishing returns. It is particularly helpful for a unique business that, you don't think you can get a full appreciation for in that one-hour meeting. Yeah. And so it's a business-to-business discussion, but have a discussion with your bankers around whether the testing and waters meetings have value on a relative scale for you. But that's something that the market has enabled with the jobs act. Layer that into your timing equation.

I think the other piece of advice I've given people is time the IPO for your business and your team, your team including your board and investors. Don't time around the market. Time it around the right time for your business. think about the scale that you need to be at to be a public company. One of the questions we get is, you know, what market cap is too small? Well, below certain thresholds, we just shrink the number of investors who will buy the deal. And that's not a good leverage thing for the company.

But there are small cap IPOs out there. There certainly are. And that seems to be a growing trend in some ways. Yeah, there certainly are. I think that you have to think about how unique is the business. If there are four public companies that give an investor the same exposure and three of them are of decent market cap and you're going to be the very small. one, you better offer something different.

Yeah. Open table was certainly unique and thus way more leeway from the market. There's also, I mean, you can go public too early. You can go public too late. If you want a multiple, you want to be a growth stock. What does that matter to be a growth stock? You get a different fundamental valuation and a different set of investors who are willing. If you're growing investors can say, boy, if they keep that up for five years, look at that

admission future, that's wonderful. If you're not growing, they look at it and say like, it ain't going to get any better than this. It does seem like the best technology companies are like that. Oh, yeah. You want to have the perception you're a growth company, which actually means you have to be delivering growth results. And typically growth rates decline over time. We were in the teens' year-over-year growth rate,

according to the analyst models when we went out. That's not really a strong growth company. Then we increased growth in the 30, 40 plus percent. That was a growth company. So if you wait too long, but if you're too early, if you're not ready to be a public company, you know, your business is unpredictable, you know, a bunch of things there. So there is this element of, okay, the biggest timing is from the company's perspective, not from the market's perspective.

That's a really great shift in mindset. So just one quick thing then, you mentioned results. And that is obviously the quarterly results, the earnings calls and the whole song and dance that goes around that. How do you manage that? Well, two thoughts. One is on the timing of going out, when you go out, you don't want to miss the first X quarters. You're going to know how many X is. But you want to be highly confident you can exceed the.

expectations that your investors have. So I usually counsel CEOs before they go out have something in your back pocket. We had two or three initiatives that we tested at small scale that we knew we're going to work and add to the business. So I was highly confident. But isn't there attention, though, that of course you want to make your numbers and I get that's important for the market confidence in you as a company.

But it's also very frustrating because of criticism people say about IPOs is that then you're now wedded to this ridiculous quarterly measurement of innovation. I think that's whether you will allow yourself to be or not. The pressure is there to conform to investor expectations. You know, oh my God, I'm going to miss their number. That's the most off-sighted reason for not wanting to be a public company. Look at Jeff Bezos. He's run the business exactly as he wanted. He told investors exactly how he's going to run it. He's been completely consistent with that. And some of his investors bought in his IPO. They've stayed with them, what, 20 years ago? Oh, yeah. Yeah, it's incredible.

I actually heard some statistic just yesterday because of this anniversary that some of the people who got the early IPO, they might have only spent like $100, and it's now worth $64,000. But so part of it is what investors did you recruit? And then how do you communicate with them? So we had an interesting early question. Do we give guidance? Do you say, next quarter, we think we're going to do revenue of X and earnings of Y? Isn't that what analysts do? Well, analysts do that, but often the company gives a range and that helps the analysts queue in on the range. If the company doesn't give it, you're leaving the analyst to come up with their own numbers. I called a tough question. I give guidance. I called the three largest holders and I said,

should I give guidance? All three said no. I go, why not? And they go, well, we want you to do what's right in the strategic long-term interest of the business. If you give guidance, there's going to be pressure for you not to do what might be right with new learning. And it helped that our business was highly predictable from outside. You know, it's not one of these, like did we close the last deal on the last day of the quarter? Yeah. You know, the diners are, being seeded by the millions. And so the law of large numbers kicked in. It was very predictable. With great metrics. Like you guys invested in explaining the metrics that matter to you as a management team. Periodically, we hear people get this mantra of no guidance and they interpret it as no

communication. They're two very different things, right? You were not signing up to a quarterly number, but it was fine because you were giving so much transparency as to what drives the business. Right. They could build their model. They could build their model. Okay. So any last parting thoughts? Taking open table public was one of the most interesting things I have done in my business career. And part of it was, I turned out in my career, I'd never done a financing. So for my first financing to be taking open table public in May 2009 at the depth of the financial crisis, it was an amazing learning experience. And there was a lot of emotion into it. I think it was more exhausted. I ended up with the swine flu at the end of the process. Swine flu. I've heard that phrase in a while. That totally

ages that time again. It was the height of the craze on that, too. Not only is the world economy coming to an end, but we're all going to die. And so we knew it was a problem. We're walking around with bottles of Purell, but we shook 400 hands. Your life is not your own. Thank you for joining us as a podcast. Thank you, thank you, J.D. Thank you.

Thank you. If you liked this episode, if you made it this far, help us grow the show. Share with a friend, or if you're feeling really ambitious, you can leave us a review at rate this podcast.com slash A16T. You know, candidly, producing a podcast can sometimes feel like you're just talking into a void. And so if you did like this episode, if you liked any of our episodes, please let us know. I'll see you next time.