Page 69 - Harvard Business Review (November-December, 2017)

FEATURE WHEN FOUNDERS GO TOO FAR

must become profitable and hire a professional CEO the investment bankers’ conventional wisdom about
before an IPO. During most of this era, founders faced the need to show consistent, profitable growth.
a buyer’s market, because there were many more good Netscape’s blowout IPO launched the dot-com boom
companies looking to get funded than there were ven- and led to a new era, in which tech companies would
ture capitalists to fund them. With a deep supply and be valued not for what they had done but for what
limited demand, investors could set the terms. they might deliver someday.
In fairly short order that dynamic began to change. The elimination of a traditional hurdle for an IPO
meant that new start-ups needn’t endure long, pa-
tient growth to become profitable companies. Instead
THE DECLINE OF THE IPO GATEKEEPERS they could go public right now, with the founder still
in place. From 1980 to 1998 the median age of a VC-
he shift began in 1995, when Netscape
T changed one of the rules. The web browser backed company that went public was seven years; in
1999–2000, at the height of the dot-com boom, it was
company was a little more than a year old—
four-and-a-half years.
and unprofitable—when it made its IPO.
The gatekeeping bankers’ expectations weren’t the
Its cofounders, Marc Andreessen (then
24 years old) and Jim Clark, hired James only thing that changed. Founders still started out lack-
Barksdale, an experienced CEO, but otherwise ignored ing the skills and experience to scale up a company, but

98 HARVARD BUSINESS REVIEW NOVEMBER–DECEMBER 2017