Imran Khan
speaker
171 appearances
1 recordings
1 series
first heard Aug 2024
last heard Aug 2024
Imran Khan’s voice in public audio — every appearance, attributed to the second.
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Appearances
I don't think IPO market is closed. I think the issue is companies don't want to go public because their expectations are too high. If you're building a company for a long period of time and you have a good business and you generate cash flow, you will create value. What is your IPO prices? It doesn't matter. I'm a big proponent that companies should go public earlier than later.
When you're going to a public market, you are building a new relationship with a new group of investors. I think any times you're trying to build a new relationship, my philosophy is give them more, give them a little bit more upside. So be it. No, revenue multiple is a BS multiple, right? Why would somebody give a shit about revenue multiple? I think the problem in M&A market is...
Thank you for having me. It worked out great. I was in London for some meetings, and I always watch your shows, read your tweets. So great to meet you in person, and thanks for having me.
So I don't think IPO market is closed. I think the issue is companies don't want to go public because their expectations are too high. Few things happen. So when 2020 interest rate was very low during COVID and 2021, all these companies raised money at a valuation that didn't make sense.
You look at in public market, you know, outside the big cap names, a lot of those names valuation has corrected. In the private market, that valuation didn't really correct. And so they want to go public at a valuation that just doesn't make sense in a public market, right?
I can buy companies that are generating tremendous amount of cash flow at 20 to 25 times earnings, gap earnings, not BS, non-gap earnings, gap earnings. So why should I pay for a company 50 times revenue multiple? I think a lot of these private companies, their numbers are not there to justify the valuation that they raised the last round. So that's problem number one.
And so they're not resetting their valuation expectations. I think the second problem is more systemic problem in market. You know, I think if you look at Allocators, so that's like universities and pension funds and endowment, they are allocating a lot of money. And now it will change, and I think it's changing slowly, a lot of money in privates.
One of the biggest thing that's a big trend in asset management, in my view, is that allocators, people who are giving monies, these are big pension funds and endowments, they are trying to reduce volatility of their performance. To reduce the volatility, a good way to go is invest money in privates, because there is no day-to-day volatility.
And second, give money to this market-neutral hedge funds. So if you look at the citadels of the world, millenniums of the world, they have become so big, right? Millennium cannot take any more capital. because people are chasing this market neutral fund. But the reality is when you avoid the volatility, it also creates other problems, right?
If everybody chased the same ideas, it reduced the return. And I think that too much money went to private market. And what problem it created, I actually don't think there is shortage of ideas in the private market, but I think there are shortage of talent to execute those ideas in private market.
So people raise all this money with great views and themes, but they're not executing the way they should need to.
The valuation is a snapshot of a company's life, right? If you're building a company for a long period of time and you have a good business and you generate cash flow, you will create value. What is your IPO prices? It doesn't matter. I think if you think about it, all these companies that are public, their stock goes up, goes down every day.
Sometimes your stock goes up or goes down for the things that you do. Sometimes your stock goes up or down for the things that you don't do. Interest rate goes up, your stock goes down. Interest rate goes down, your stock might go up. That has nothing to do with what you have done. So the reality is, you know,
over obsessing about the valuation of your business is not the right thing to do because at the end of the day, a founder job is to create business. What is the value of the business? That's the job of an investor. So a founder who obsesses with valuation, they're not doing their day job, which is building a business. If you're a founder, I think you should go public.
I'm a big proponent that companies should go public earlier than later, and we can talk about it.
I would challenge that in that case, the founder failed to build a culture. Because I think if you look at some of the greatest companies has been created in the public market. Look at Amazon. Amazon stock was incredibly volatile in late 90s, early 2000s. But Jeff Bezos retained their great talent. If you look at Facebook, they went through tremendous volatility.
And two of them were existential threat for the business, right after IPO, the whole mobile issues. And then a couple of years ago, their cost structure went completely different directions, but the team's still there. I think when you build a business, you need to really ask a question. Are you hiring mercenaries or are you hiring missionaries?
If you're hiring mercenaries, yeah, you have to care about your stock price and this mercenary is going to jump as soon as your stock price goes down. But if you hire missionaries who believe in the company's missions, who believes in your leadership, I don't think the stock price make that big of a difference.
And actually, if the stock price goes down and those employees leave, it's probably a good thing for the companies.
So I think that will change because what happened in last decade, there were a lot of liquidity. In 2021, 2020, there was a lot of liquidity. And by the way, last decade between 2011 to 2021 was great return for private equities. However, I think going forward is going to be very, very tough for a couple of reasons.
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