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Not Enough Chumps

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by Russ Mitchell
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Jun 19 2008 12:00am EDT

Not enough chumps

Russ Mitchell pontificates: LinkedIn CEO Dan Nye, whose startup is taking private equity money rather than issuing an IPO, explains the move this way: "What we didn't want is to have the distraction of being public and to be worried by quarterly performance." It's not like he had much choice, though: the stock market continues to present a cold shoulder to new issues, especially in areas like social networking, where profits and returns on investment remain a mere possibility.

Eventually, LinkedIn will have to issue an IPO or sell out to a bigger company if founders and investors are ever to cash out. Meantime, new capital like the recent $53 million from Bain Capital dilutes the eventual payoff for executives like Nye.
The frigid IPO market isn't good for venture capitalists, whose investors are hurting for returns, nor for company founders lusting for that estate in Atherton. But a more skeptical IPO market is good for the long run, assuming that promising startups like LinkedIn have access to private money.
The Internet boom and bust warped the role that IPOs play in the tech economy. In decades previous, companies were a lot closer to profitability, if not profitable already, before VCs took companies public. Private capital, not chump retail-level stock investors, absorbed most of the startup risk. That's a healthier, more stable, more effective way to finance entrepreneurial growth.

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