For the last year everybody has been talking about “when will Zynga/Facebook/Groupon/etc have an IPO?”. Now, with recent IPO filings from Groupon, a successful IPO from LinkedIn, and musings of an IPO for Zynga, the news has to shift into a new speculative phase. So, how will the landscape of startups and tech companies, and the distribution of talent among them, change over the next year as all of these companies file for and complete their IPOs? (Warning: Everything below is speculative garbage. Actually, that warning probably belongs at the top of every one of my posts, and probably at the top of every blog…)
For one, I imagine a lot of the companies will lose large swaths of their core members to other endeavors. Think about it: If you are a 2-3 year employee of LinkedIn/Groupon/Zynga, you really hit the lottery when it came to stock options, but until the IPO your ability to cash out and actually make the money is severely limited. Maybe you could trade some on the secondary market, but the company strongly discourages that (for good reason), so the IPO may be the first time you can sell shares for astronomical prices. Plus, new startups will pay a premium for somebody who was at one of those successful companies from the beginning (Zynga project managers, for example, are highly sought after by social game startups, and I imagine somebody with institutional knowledge of Groupon or LinkedIn would benefit from a similar advantage). Google and Apple regularly see employees rise up through the ranks and then depart for smaller ventures, so its pretty likely that the new group of tech companies will see employees leave after their IPOs as well.
The real thing we don’t know is how IPOs by this group will impact the rest of the market in terms of venture capital, startup formation, and general investment in tech. It’s far too soon to tell how the larger market appreciated LinkedIn post-IPO, and although the IPO itself raised LinkedIn’s valuation quite a bit, the company now has to produce growth and profits for investors if that valuation is going to hold. Zynga seems a shoe-in to grow (unlike Groupon, they are wildly profitable despite their rampant growth), and with a likely IPO valuation in the $8-10 billion range, that would give Zynga enough cash to unify the social game front and buy up any sizable competitor. That sort of money behind Zynga will likely skyrocket valuations of other game companies – companies become more valuable in Zynga’s network, as the social/viral aspect of their games generates exponentially greater returns when the games benefit from display time on the screens of Zynga’s existing user base.
This post isn’t going anywhere, really, so if you are still hoping for a conclusion I apologize. My predictions are basically that Zynga will take over the world with an overvalued IPO. Because Zynga doesn’t actually need any more money, the IPO is driven by a desire to let founding members and middle management cash out (see Groupon). So shortly after the IPO, Zynga will lose tons of talent to now also overvalued smaller companies, who Zynga will be forced to buy up in the pressure to spend that IPO cash and grow. Maybe we shouldn’t call IPOs successful just because they raise a company’s valuation. There, let’s call that the conclusion.
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