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
The reason I tweeted about that is, I think if you look at, let's take CrowdStrike. CrowdStrike, before the incident, was trading at 20 times run rate revenue. And it is a world-class company. So the valuation that Google offered, and remind me, I think it was reported number- $23 billion. $23 billion.
So they have to do $1.2, $1.3 billion revenue to achieve and have to maintain the growth rate to achieve that snapshot value. But that's not a sustainable value because something always happened. Ultimately, SaaS businesses trade seven times revenue multiple.
The thing is that once you go public, your growth rate is going to slow. It's going to multiple going to compress. And along the road, you're going to take dilutions because when you're growing that fast, you end up raising more money. Listen, when you're growing really fast, Jack Ma used to say and actually said that when they're babies, cats and tiger look same, but a cat never become a tiger.
So when a business is very small, it's very easy to look at the business saying that, hey, this could be a great business. And You know, ways very much could be. I don't know. But the reality is, you know, how many times we have seen that every 50 companies we look at that's growing and we think that will become a tiger, only five of them become.
So if you have to play the probability game, there is a high degree of probability that may not be the right decision.
I have great respect for Bill Gurley. He's a very, very smart guy. But this one thing, I don't agree with him. I think he's over focused on one day stock pricing. Now, listen, if the stock doubles, that's obviously bad. But between 20% and 50% and just over-focusing on that, I think it's misguided. And I'll tell you why.
So number one, my guiding principle is whenever you bring a new investor, you want them to make money. You never do create a situation that they come in and they lose money because you're building new relationships. I think any times you're trying to build a new relationship, my philosophy is give them more because it's the start of a relationship.
When you're going to a public market, you are building a new relationship with a new group of investors who doesn't really know you that well, and they're getting to know you. Fine, you give them a little bit more upside, so be it, because you're building goodwill. Because one day, as in your public life, you're going to have a bad day, and you want to build that goodwill.
So that's how relationship builds, and that's the way I think about life in general. Don't be over-transactional. The second reason is, the reason I call it misguided, I think People don't necessarily understand how public market necessarily, I'm not saying about Bill Gates, but people who get over-focused on it, is that when a company go public, they sell a very small percentage of the company.
So even with the pop, whatever the money left on a grand scheme of thing, percentage of dilution is pretty low. The other thing is that when a company go public, because they sell a small percentage of the company, most investors cannot buy their full position. So let's say you are Fidelity and a company is going public and you are doing a $200 million IPO.
Fidelity will get, let's say, 15, 1.5, 15% of the allocation. That's going to be a very high allocation. That's a $30 million. The amount of money that the Fidelity PM manage, that's not a lot of stock. So they need to buy the stock after market to build their position. And so if the stock is, if you give them a discount, they can pay up more so that they can dollar weight and average their price.
If they're buying the stock at the price that it doesn't go up, only goes up 10%, they can have dollar weighted average. So they will not gonna go buy the stock. So you're gonna have a supply-demand imbalance. They will probably sell the stock and actually your stock gonna cradle and that's gonna create more problem for your company than leaving some money off the table.
At the end of the day, the entire capital market in the United States, and globally probably, but in the United States, was built on trust. People give you money when they trust you. When they give you money, they give you their trust. No matter what you disclose, they don't know everything about your business. They don't understand every risk about your business.
At the end of the day, they read all the documents, they believe that you disclose everything, and they trust you. That's why they're giving you capital. And that's why when the trust breaks, Jamie Dimon, you know, in 2007, when I became J.P. Morgan managing director, he said, you know, that there was a time the financial crisis was happening.
The two Bear Stern hedge fund went bankrupt, you know, and I was a young MD. I didn't really understand the consequences of that two hedge fund going bankrupt that ultimately figured out a lot of different things. And he said something very good. It takes 100 years to build a trust, but one year, one day to destroy all the trust that you built. and stays with me.
So the reality is, if you think you're gonna go public, you should go build relationship, tell your story, show your performance over the years. I said that, I did that. That builds trust, and that's a good business practice. But that has little to do with IPO.
The IPO process is you go through this two, you file a document, people read it, and then you go through this two weeks grueling roadshow, you do 60 meetings, After those meetings, people read your prospectus. They may or may not know you from past. They do their own analyst call, market research, and then they put indication that they want to buy the stock.
90%, a good IPO. If it's less than 50%, it's going to be hard to do an IPO. What sort of percent was Alibaba? What sort of percent was Snap? Both were pretty close to 90%. Wow. Yeah, they're very high. Have you had one that was incredibly low? Yeah, as in my banker career, yes. And we had to pull the IPO.
And that happens, you know, and it happened because the business is bad or it happens because the market is bad. And then they set the price with that bid? So the way the pricing works, you know, there's three kind of different IPOs, right? Traditional IPO, auction IPO that Google did, and I think somebody else did, and then direct listing that few companies did.
But let's talk about traditional IPO because that's the vast majority of it. So once you file it based on the comps, based on some of the public feedback that you hear, the company with the partnership with the banks set the price range.
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