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 A distracted CEO juggling two companies, neither of which is a
well-oiled machine, may not inspire the investor enthusiasm Square
had bet on, financial industry experts told Reuters.
"Management and management focus are the single most determining
factor of the success or lack thereof of a company pursuing an IPO,"
said Lise Buyer, an IPO consultant with Class V Group in Silicon
Valley who also helped guide Google Inc's IPO.
"Were I a (Square) investor, I would want to be compensated for the
cost of a part-time CEO who already had a full plate. And by
compensated I mean I would expect a lower valuation."
Square was valued at $6 billion at its last funding round a year
ago. The company has filed a confidential public offering and plans
an "imminent" public filing, according to a source familiar with the
situation, potentially putting it in a position to be a public
company by the end-of-year holiday season.
There is no indication yet how Square might price shares. And the
company could still push back the IPO, as the market's volatility
provides an easy cover for any delay.
This IPO would affect more than just Square. A blockbuster debut
from Square could rejuvenate the sluggish IPO market, which is down
35 percent over last year in terms of number of deals priced,
according to IPO manager Renaissance Capital.
Concerns about slowing growth in China and an interest rate hike in
the United States by the Federal Reserve helped make the third
quarter the worst since 2012, with IPO proceeds plummeting 77
percent compared with the same period a year ago.
“If Square went out and did well that would encourage people
generally to go out,” said Eric Jensen, an IPO attorney and partner
at law firm Cooley.
But if it prices low and performs poorly on the stock market, he
said, other tech companies in the queue will have a tougher time
finding buyers.
DEMANDS ON DORSEY GROW
Still, Dorsey, a Twitter co-founder who took over as interim CEO in
June, has been lauded for his work guiding both companies over the
last four months. He has pleased many Twitter shareholders, while
Square has launched new products and its IPO plans have chugged
along.
“I don't think anybody has had a good experience betting against
Jack Dorsey," said Fritz Lanman, an early Square investor and tech
entrepreneur.
But with an IPO looming, Dorsey's responsibilities at Square will
grow if he keeps the top job at both companies. Tech news site
Re/code reported on Wednesday that Twitter was expected to name him
permanent CEO as early as this week. Neither company has commented
on the appointment.
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Dorsey will likely face fire when Square begins its road show, the
period of pitching to investors and fund managers leading up to the
public offering, sources say.
"Investors would have to get comfortable with how he would do both
jobs well," said David Erickson, a longtime banker and venture
capitalist who teaches at the University of Pennsylvania Wharton
School of Business.
"What would also, I think, make this particular situation more
challenging is the turnaround currently going on at Twitter, and the
time I assume it would require."
While not facing the same scrutiny as Twitter, Square is working to
define itself and is in need of leadership. Square started as a
payments company but now offers a suite of small-business services,
ranging from loans to invoice software, and it continues to
experiment and evolve.
The distractions will continue after the eight- to 10-day roadshow
that will likely take Dorsey across the globe to drum up interest
for an IPO.
Dorsey will have to be more involved with investor and analyst
meetings, make more public appearances and hold quarterly earning
calls, according to IPO experts.
Meanwhile, Twitter's stock is down 52 percent over the last year,
and investors are clamoring for the company to grow revenue and its
user base.
"There is so much uncertainty and so much attention needed at
Twitter that it certainly should not inspire confidence in potential
investors about Square,” said Buyer, of Class V Group.
(Additional reporting by Lauren Hirsch in New York; Editing by Dina
Kyriakidou and Leslie Adler)
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