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Sep 25 2008 11:58am EDT
Digg and the IPO Problem
Kevin Maney writes: News Web site Digg managed to get investors to pony up another $28.7 million. On the surface that may be moderately interesting. But it also could be a sign of trouble for a lot of tech start-ups.
Marc Andreessen, CEO of Ning, recently talked to me about the state of IPOs in tech -- which is to say that tech IPOs are utterly dead. Considering the state of Wall Street and, especially, the investment banks that typically underwrite IPOs, these vehicles will be dead for quite some time.
Tech start-ups have three potential outcomes. 1. Do an IPO as a way to cash in and vault to the next stage; 2. Commit to building a successful private company, at least until the IPO market bounces back; 3. Sell to a big company like Google or Cisco.
So number 1 is not currently and option. Number 2 is Facebook's current choice, but most companies find it hard to really break out and get big as a private firm.
Number 3 tends to be Silicon Valley's option du jour. But then -- what do you do if nobody wants you? Digg apparently hoped to get bought by Google for $200 million, but Google backed away. So it had to raise more money to keep growing the business.
Andreessen says the IPO crunch hasn't affected Silicon Valley company-creation yet. And in the past, tech entrepreneurs have started companies in good times and bad with equal alacrity. But maturing start-ups could increasingly find themselves in Digg's position -- out of options and raising cash to keep going.
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