Ready or not, here it comes: a long run-up to what’s sure to be another ludicrously overhyped initial public offering. Yes, I know I’m fueling Twitter’s IPO hype by writing about it. Sort of ironic, isn’t it?
It’s also sort of amusing to see all the speculation over why the social media company chose to file now and when the blessed event might actually come to pass. If you’re looking for answers to those intriguing questions, look no further than Facebook.
While Twitter’s executives will likely do everything they can to avoid making the same mistakes Facebook made in its remarkably botched IPO last year, when it comes to the timing and pricing of Twitter’s IPO, all eyes will be on Mark Zuckerberg’s social network.
When you sell a house, you use comps – competitive properties – to price it. It’s the same with IPOs. Twitter’s only real comp is Facebook and the social network is trading near its all-time high with a market cap of over $100 billion. That’s why Twitter is filing now. It definitely wants to get in on that action.
How soon will the company actually go out? Assuming Facebook maintains its lofty stock price, as soon as Twitter can line up its underwriters, get the due diligence process done, get the real S-1 filed, and bang out a road show. I doubt if they can pull it off before Thanksgiving so we’re probably talking early 2014.
That said, if Facebook shares drop significantly, Twitter and its bankers will hit the pause button on its offering faster than you can say Tweet.
As for what’s in store for Twitter CEO Dick Costolo and the rest of his executive team, having been through a couple of these myself, the best way I can describe the process leading up to an IPO is this:
Twenty or thirty bankers, analysts, and lawyers hold you down, give you a root canal without anesthetics for three or four months, then hand you a great big check – except you don’t get to cash it. Nope. You have to hold your breath for six months until the lock-up period ends and pray you haven’t lost all your money.
And no, I’m not exaggerating. It really is like that, at least for those intimately involved in the process. And even though Twitter’s public offering is probably months away, I can already tell you who the big winners and losers are going to be. Just don’t expect me to do it in 140 characters or less.
Winners: Founders Jack Dorsey, Evan Williams, and Biz Stone. Since the company’s been through I think seven rounds of funding, that’s a lot of dilution. Still, these guys will be worth a bundle when the dust settles, that’s for sure.
Loser: Founder Noah Glass. Reading Business Insider’s account of how co-founder Noah Glass got the shaft (and keeps getting it every time the story of Twitter’s founding is told and his name isn’t mentioned) will be a real eye opener for the uninitiated.
Winners: Twitter’s investors. Early investors like Union Square Ventures, Benchmark, and Institutional Venture Partners will make out big-time.
Losers: Odeo’s investors. Odeo is the failed company from which Twitter sprang. Williams bought Odeo’s investors out and walked off with Twitter for $5 million, less than 0.1% of what it would be worth now. I think there may be some bad feelings there.
Winners: The media. The media loves this sort of thing. Hot Internet IPOs mean hype, hype means eyeballs, eyeballs mean clicks, and clicks mean advertising dollars. Cha-ching.
Losers: The media. Ironically, the same people that love covering this stuff are being gutted by the likes of Google, Facebook, and soon enough, Twitter. Internet companies are sucking the ad dollars right out of traditional media firms.
Winner: Nasdaq CEO Robert Greifeld. After the Facebook debacle and all the recent technical snafus, make no mistake, the Nasdaq CEO’s job is on the line. If he lands Twitter, he’ll get to keep it. If not, he’d better start dusting off his resume. In case you didn’t know, the number of public companies and new offerings has been shrinking at an alarming rate since 1997.
Losers: Retail investors. It was sad to watch all those Facebook users get roped into buying shares in the IPO. Listen folks, the tech bubble burst 13 years ago. It’s over. Nobody makes money flipping IPO stocks anymore. Don’t worry; the stock will still be there in a few months.
Winners: Silicon Valley. You wouldn’t know there ever was a housing bust or a recession within a 50-mile radius of Apple or Google headquarters. Silicon Valley’s in its own little bubble, and IPOs like Facebook and Twitter keep it nice and pumped up.
Losers: Wall Street. Tech IPOs sure aren’t what they used to be. There are far fewer deals to chase, more underwriters to share the shrinking pot with, and the competition is brutal. When it comes to dot-com IPOs, Wall Street definitely isn’t partying like it’s 1999.
Winner: Goldman Sachs. That said, investment banks have lots of ways to monetize public offerings, and Goldman Sachs has reportedly been chosen as lead banker on the Twitter deal. That’s a big win for CEO Lloyd Blankfein and his co-heads of global technology investment banking, George Lee and Anthony Noto.
Winners: The lawyers. You would not believe how many attorneys and billable hours are involved in the IPO process and all the subsequent filings a public company has to make. It’s a huge legal bonanza.
Losers: The users. You would not believe how many of the tweets, trends, and accounts coming across your Twitter feed will actually be bought and paid for now that Twitter’s kicking its advertising machine into high gear.
Steve Tobak is a Silicon Valley-based strategy consultant and former senior executive of the technology industry.