It has become a commonplace—I have bowed to convention and endorsed the notion myself—to observe that law firms are labor-, not capital-, intensive, and that (here’s the dangerous and subtle segue) therefore there would be no benefit to them in taking on outside investors, much less going public. This is often combined, at least by the more nuanced, with a brief observation on the perils of law firms’ taking on a material amount, or any amount, of debt.
But what if the conventional wisdom is mistaken?
I’m put in mind of this by a recent technology “State of the Art” column in the NYT questioning whether Silicon Valley’s now long-running disenchantment with IPO’s in particular and being public in general is actually mistaken:
While floating an I.P.O. was once seen as a rite of passage in Silicon Valley, in the last few years it has become a much bemoaned annoyance to many tech founders. Companies are waiting longer to go public, and thanks to a surge of money from hedge funds and mutual funds looking to get in on the start-up scene, young companies have been given resources to stay private for years on end.
Farhad Manjoo (the reporter) hooks his column on the recent much derided IPO of Box, the cloud storage company, whose stock is down about 40% since its flotation this past January. But contrary to conventional wisdom, Box seems delighted to be public:
“It’s great to be public,” said Aaron Levie, Box’s chief executive and co-founder, citing the unpredictability of the private funding market. “We don’t have to worry about any of that right now.” While some tech founders are concerned that public companies have to report earnings every quarter, spurring short-term thinking, Mr. Levie said, “The three-month timeline allows you to create a strong internal rhythm of hitting your goals and accomplishing what you set out to do.”
Not only that, but publicly traded stock is a currency with which to make acquisitions or recruit key employees. Bill Gurley, the Benchmark Capital VC and by any measure a top dealmaker in the Valley (Dropbox, Snapchat, Instagram, Uber), has come around to the same view:
[Wall Street Journal]: Talk about public markets. It seems like there’s a recognition that eventually these companies have to go public. You have to get liquid.
MR. GURLEY: I think that’s one of the biggest problems that we’ve had. There has been a mythos of stay private longer that I think is probably the worst advice that’s ever been given in Silicon Valley.
The notion was that it’s hard being public, so why not just stay private as long as you can? I think it just allowed for more promotional behavior and less discipline and less recognition that eventually you’ve got to get to a place like a public market.
Another Valley CEO you perhaps have heard of is also a convert:
