For a moment I thought it was a typo when I saw the headline “Survey Monkey Raises $800 Million in Debt and Equity.” Shouldn’t that be $80 million? No. What’s going on? Survey Monkey essentially just provided a massive private liquidity event to its investors and employers. And it did so while staying private. Why would someone want to do that? Here is what Dan Goldberg, Survey Monkey’s CEO and Sharyl Sandberg’s husband, said to Fortune:
"There are lots of good reasons for going public," says Goldberg, ticking off growth capital, brand recognition and credibility with business customers as chief examples. "We just don’t have any of them."
There is of course also an implication that going public has costs that staying private does not. The obvious ones are the regulatory/compliance overhead but there is also the issue of keeping employees focused on building the product in the face of a potentially wildly fluctuating stock price.
So is this a good idea and should more companies be doing it? It’s worth digging a bit deeper into Survey Monkey’s numbers. According to the very informative Fortune piece, the company makes $61 million in earnings on $113 million in revenues and is being valued at $1.35 billion. That’s a nearly 12x multiple on revenues and a 22x multiple on earnings. Both of these seem reasonable in light of the multiples on publicly traded internet companies. Historically though these are high multiples for a private transaction involving debt. It means that investors are still expecting significant growth. It is also a reflection though of the currently low price of debt. That low price means both that less cashflow will be diverted to interest payments and that the discount rate for calculating value in a DCF model is lower.
Given that the math makes sense I expect to see more of these kinds of transactions. There is, however, an important social implication that is worth pointing out. By keeping these transactions private it means that the value created here is accessible only in the private markets. Some of that will benefit public pension funds which are limited partners in Tiger Global Management. But other equity providers are Google and Iconiq which is a family office for several Facebook executives. I continue to believe that we should be leveraging the internet to make the value creation in companies such as Survey Monkey more widely and democratically accessible (see my past posts on IPO 2.0 and the Private IPO).