The Goldilocks bust: We didn’t get the Square IPO we wanted,

At the beginning of the week I wrote this piece predicted Square would stoke another round of bubble talk. I was right about one thing and very, very wrong about another.

The wrong: I predicted the IPO everyone would be talking about all week would be Square. And then Sean Rad gave one of the worst interviews of the year where he confused Sodomy with Sapiosexuality, threatened a female journalist, and made sure we all knew that (unnamed) supermodels were ldquobeggingrdquo to sleep with him. Match Group ndash much to the truth-bending, chairman Greg Blattrsquos chagrin ndash won the battle of oxygen.

The right: I argued that a tech world that has spent much of the last six months talking itself into a correction, uneasy with this reality...

hellipwanted ndash was yearning for ndash a catalyst. Some deus ex free-market-a to justify the growing consensus that things are way over-valued, and way over-funded, and burning way too much money, and that itrsquos all just gonna stop right here and now.

That didnrsquot really happen. And that really does make Square the perfect flashpoint, the perfect descriptor, the perfect embodiment of exactly what the startup world is dealing with right now. A catalyst wrapped in a frustrating non-catalyst.

ICYMI: Square, cut its share price several times, including just the night before trading, to $9. Thatrsquos a decline of more than 40% from what it was valued at a year ago. It opened, traded, and ended the day in the range it had before the cut: $11 to $13. Better.

It popped decently. It didnrsquot crater. Executives spent the day making the rounds to the business press explaining that this pop meant investors didnrsquot think Square was ldquojustrdquo a payments business after all. That investors did get the promise of Square. That it meant they were right to push through with the deal.

At least one commentator felt differently. Richard Windsor, analyst at Edison Investment Research, argued that the IPO should be pulled given the tepid $9 price. The reason that wasnrsquot gonna happen? Not just Dorseyrsquos ego. Not just the companyrsquos need to go public. But because those late stage investors made money no matter what, meaning there was a huge conflict of interest at play.

From the report:

In my opinion this creates a conflict of interest as it is becoming clear that the best interests of the company would be served by pulling the IPO. This is for a number of reasons: First, sentiment is starting to turn against hugely valued start-up companies making it a bad time to sell shares; second, Squarersquos growth is slowing and it is not making money nor is it generating cash - public companies tend to do better when they are profitable unless they are very fast growing; third, Squarersquos CEO is also the CEO of Twitter which is a far from ideal situation for either company.

Consequently, we think that the embarrassment of delaying the IPO is far outweighed by the benefit of waiting for a better time and getting the company into better shape before going public. The problem is that the investors in the latest round have no incentive to call off the IPO because as long as the shares donrsquot fall below $7.2 per share they will make money when the lock-up expires.



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