What Happens If Uber and Snapchat Don't IPO in the Next Three Years?

Many wonder if the failure to go public means the end of these tech giants. However, this is a misconception. Not every company that aspires for a public listing feels compelled to do so. In fact, going public is often seen as a growth strategy rather than a necessity. Let’s delve into the real scenarios and implications.

Not Every Company Needs an IPO

IPOs, or Initial Public Offerings, are often glamorized as the ultimate goal in the tech world. But is going public really the Holy Grail? Not necessarily. An IPO is merely a tool for financing that allows companies to reach new heights while giving earlier investors a chance to profit from their initial investments. Companies like Uber and Snapchat might simply reach their financial goals through other means, such as venture capital or private equity funding.

Not all companies are primed for an IPO. When a company has satisfied its funding requirements or has dedicated private investors, the benefits of an IPO may not align with its strategic goals. Additionally, the stringent regulatory requirements and the focus on quarterly earnings might not suit every company's long-term plans.

No Obligation to Return Money

A common misconception is that these companies owe investors money because they don’t go public. However, this is incorrect. Investors do not lend money to these companies; they purchase shares, essentially becoming a part-owner of the company. The principle is the same as purchasing a business: no one owes you money.

Each investor buys a percentage of the business in the form of shares, which typically come with rights such as board representation and voting rights. These shares also have the potential to bring returns through share sales or dividends if the company makes sufficient profits. The idea of going public is not tied to an immediate return on investment but rather to long-term growth and value appreciation.

Options for Investors

Investors in companies like Uber have several options:

Sell Shares: They can sell their shares to another investor at any point, provided they believe the shares have declined in value or if they believe it’s a good time to liquidate. Board Influence: As shareholders, investors can use their voting power to elect a board that aligns with their strategic vision, even if the company remains private. Legal Action: They can bring a lawsuit if they believe their rights as shareholders are being violated.

If none of these options are pursued, the investors are left with their shares. In the case of Uber, let’s consider the scenario of its debt financing from Goldman Sachs in 2015. This debt, while significant, is not an obligation that trumps the company’s other business decisions. If Uber has the cash to pay off the debt, it will. If not, the company risks defaulting or declaring bankruptcy. However, this is not related to going public but to the financial management of any company.

Private Company vs. Public Company

Uber and Snapchat might choose to remain private companies instead of going public. This decision can be strategic, depending on the company’s goals and market conditions. Remaining private allows these companies to maintain control and avoid the regulatory and transparency requirements of public companies.

For example, venture capitalists and private equity firms often prefer to keep companies private if they believe the long-term strategy of the company is not aligned with a public listing. This choice provides greater flexibility and strategic control over the company's day-to-day operations and decisions.

Conclusion

Therefore, the fear that Uber and Snapchat might have to return money to investors in the event of avoiding an IPO is misplaced. Investors do not have a legal obligation to return their investment. Instead, they can choose to sell their shares, influence the company’s direction, or pursue legal means if necessary. The decision to remain a private company or go public is a strategic choice that impacts the company’s growth and the investors' returns.

The financial health and growth potential of these companies are linked to their business strategies, market conditions, and investor preferences, not solely to their public listing status.