The startup industry has been whistling a happy tune since British chip designer ARM filed paperwork with the Securities and Exchange Commission late last month for an initial public offering. Growing expectations are that the upcoming offering will force open the IPO window for several other offerings as well. But while SoftBank, ARM’s beleaguered owner, is likely to exit… Great return of ARM Once it floats on the Nasdaq, the “blockbuster IPO” may have much less of an impact on the rest of the industry than many expect, says former operator, entrepreneur and longtime VC Heidi Roizen.
We recently spoke with Roizen – with whom he has spent the past decade Thishold projects – About the offer and what is happening in the market now. You can listen to that longer conversation here Or read excerpts, edited for length, below.
TC: You have New podcast And most recently I’ve covered tours – a big topic this year. Is there any unconventional wisdom you can offer founders? Venture capitalists I’ve spoken with over the year say it’s better to get a lower valuation than to accept certain terms, or “structure,” in order to maintain an overvalued valuation.
HR: Sure, VCs will say, “Just take the lower valuation.” But I think it’s one thing to tell people that “conditions are more important than valuation.” It’s another thing to show someone, “Hey, you’ll get 24% if you do this, but you’ll get 48% if you do that.” Entrepreneurs must do the calculations and check this [they] Understand it when [they’re] Give negative protection [to VCs], this will likely come out of their own pockets. In the podcast, what I tried to do is give them real examples.
“Preferred sharing” is a term that no one has heard in many years and has resurfaced this year. What else have many founders not been exposed to previously and therefore struggle with?
There is a lot going on right now that entrepreneurs need to be aware of. The world of finance is just one element. Compensation is another place where [founders] Really look and say, “We need the right size.” I’m also working on a future episode about secondaries.
Secondary matters are interesting because they were once seen as something shameful that you didn’t discuss, and then it was okay to discuss them – you were actually smart about taking money off the table. Then things went very wrong, as the founders were allowed to sell a lot of stock in their company – sometimes at high prices – at the same time that they were raising seed capital from investors.
It became documentary material for Netflix.
exactly! What do you think of a recent report by Tiger Global? Close to selling From part of its stake in a very busy artificial intelligence company called Cohere. According to the information, it is selling 2.1% of its stake and retaining 5%. Essentially, it’s just taking the money you put into the company and taking it off the table. Tiger is said to be facing liquidity issues, but wouldn’t this kind of secondary sale also affect how the market views Cohere?
I think it’s more of an indicator about the panther than it is an indicator about the coherent. It’s a very small percentage [that it’s selling]. Tiger is allegedly in a cash crunch, and they are the portfolio managers. They look around at their holdings and say, “Oh my God, we have a bunch of securities that if we try to sell them in a secondary trade, we’re going to have to take a loss. At the same time, we have a Cohere where the money is, so we can hold that and it doesn’t affect We wrote that bad. We give the money back on the LPs and it’s kind of a wash. Part of those psychological decisions. It’s very hard to sell losers.
In separate AI news, Salesforce just led a big round in AI startup Hugging Face, which is just the latest bet for Salesforce, which also owns stakes in Cohere and Anthropic. As a person on Artificial Intelligence Committee at Stanford UniversityDo you think relationships with strategic investors are more important for AI startups today than other types of startups? It’s nice to have the power of Salesforce or Oracle behind you, but there are downsides too.
Strategic investors make up a large part of an entrepreneur’s financial ecosystem. Nearly 20% of all deals have a strategic investor in them. But as I once told a businessman, “When I invest in you, I only make money if your stock goes up.” But when a strategist invests in you, he also makes money when his shares rise.’ To me, this sums up something really important. I understand that Salesforce paid 100x revenue, and to my knowledge, no public company trades at 100x revenue. Unless you plan to sell this stock at some point in the future, this is a very strong price.
If you are also making some kind of simultaneous business development deals, this will allow you to benefit from what [a startup has] inside for you Customer base and for you Technology and in for you New market segments, that’s what makes for you Stocks rise. So we’ll have to wait and see, but I imagine that’s the case [Salesforce] Justification for paying a price like this.
Meanwhile, everyone is waiting for this ARM IPO. The prevailing thinking seems to be that this chip design company will be worth between $40 billion to $80 billion and will open the IPO window. Do you think so too?
Every company that goes public is different. I never understood this concept of, “Okay, the market is closed, but if you take one very large company, and you put it out there, suddenly everyone can go public again.” I personally don’t understand it. So, no, I don’t think it’s going to open up the market and a whole line is going to go there and we’re going to have 50 IPOs between now and December.