Goldman Sachs' Anthony Noto | Disrupt NY 2013 | Summary and Q&A

Transcript

Read and summarize the transcript of this video on Glasp Reader (beta).

Summary

In this video, the speaker discusses the current state of the IPO market and the factors affecting it. They also talk about the characteristics of tech companies, the importance of going public, the role of a CFO, and the role of an investment bank in the IPO process. The speaker also mentions the lessons learned from previous IPOs and predicts that 2014 will be a big year for consumer internet IPOs.

Questions & Answers

Q: Where does the speaker see the current IPO market in terms of history?

The speaker believes that the current IPO market is at a level of 5 on a scale of 1 to 10, with 10 being a bonanza and 1 being a completely closed market. They compare this to last year, which they estimate was closer to an 8 on the scale.

Q: What are the three factors needed to have an open IPO market?

The three factors needed for an open IPO market are strong underlying demand for equities, incremental capital in the market, and investor desire to buy sector growth stories. Currently, these factors are present, making it a positive market.

Q: Why did IPO registrations increase in Q1 of 2013?

The speaker explains that there is a nice backlog of IPOs and a significant increase in the number of IPOs in the pipeline. This includes not just software companies, but also consumer internet IPOs and ad tech companies.

Q: Why has enterprise software been the lead sector in the IPO market?

Enterprise software has been the lead sector in the IPO market because it has good visibility to revenue, disrupts traditional software companies, and offers a premium valuation for potential acquisition. It has favorable characteristics and has been driving positive investment.

Q: What differentiates a tech company from a consumer company?

The speaker explains that tech companies use technology predominantly to deliver their services to consumers. They use technology for their interface, distribution, information, data, and analytics. While other companies may have technology, tech companies heavily rely on it to deliver their services.

Q: What are the reasons for a company to go public?

The speaker mentions three reasons for a company to go public. The first is access to capital, as the private market may have limitations. The second is liquidity, as investors invest in start-up companies with the expectation of an exit. The third is branding or legitimacy, as being a public company adds credibility and trustworthiness to the business.

Q: When is the right time for a company to go public?

The speaker explains that the right time to go public depends on the business cycle and various factors. It is advisable to go public when margins are increasing, revenue growth is relatively high, and there is a high propensity to exceed expectations.

Q: Does Wall Street understand tech companies?

The speaker states that the market has become good at valuing tech companies and giving them credit for future growth. However, there may be a lack of familiarity with Silicon Valley among the majority of investors, resulting in some misunderstandings or misinterpretations.

Q: How important is the role of a CFO in a tech company?

The speaker emphasizes the importance of hiring a CFO who can be a trusted partner to the CEO. The CFO should have the intellectual capacity to challenge decisions, should be an operating CFO rather than just an accountant, and should have the ability to use data to drive decisions and manage risks.

Q: What does an investment bank do in an IPO process?

The speaker explains that the main tasks of an investment bank in an IPO process are drafting the S-1 disclosure document, preparing for the roadshow, conducting the roadshow, and ultimately pricing the IPO. They also emphasize the importance of trust, credibility, experience, and firm resources in choosing an investment bank.

Q: What were the lessons learned from Facebook's IPO?

The speaker mentions several lessons learned from this generation of IPOs. Some companies went public too early without a proven path to profitability or sustainable user base. Others faced big product voids or platform shifts. It is important to consider these factors and the business cycle when going public.