20VC: Figma's 250% Pop - The Greatest IPO Mispricing Ever | Meta...

Full Title

20VC: Figma's 250% Pop - The Greatest IPO Mispricing Ever | Meta and Microsoft Blowout Quarters: Broken Down | Cognition Raises at $15BN and Ramp at $22BN | CRV Downsizing and What It Means for LPs and GPs

Summary

This episode of 20VC features a panel discussion on recent significant events in the tech and venture capital landscape, including Figma's IPO performance, the financial results of tech giants Meta and Microsoft, and high-profile private funding rounds. The conversation delves into the intricacies of IPO pricing, CEO compensation models, the current state of AI investment, and evolving strategies in venture capital.

Key Points

• Figma's 250% IPO pop was an unintended "absurd" outcome, as IPO pricing is a delicate balance aiming for a modest pop (15-20%) to satisfy long-term investors, not necessarily to maximize immediate sale price.
• The perception of "money left on the table" in IPOs is often misleading, as a higher initial price might not have attracted the same demand, suggesting the eventual high trading price *depended* on the initial lower valuation.
• Large IPO pops, while beneficial for employees, can lead institutional long-only investors to prematurely sell shares if the stock surpasses their internal price targets, contrary to their usual holding strategy.
• Traditional CEO compensation heavily reliant on RSUs fosters risk-averse behavior, whereas Performance Stock Units (PSUs) or packages tied to net worth are advocated for incentivizing "swing for the fences" growth.
• Big tech companies like Meta and Microsoft are demonstrating strong financial performance from their core businesses, enabling them to invest significant capital into long-term AI initiatives, even as AI's direct revenue generation is still developing.
• The current AI investment landscape suggests a "CapEx bubble" due to massive infrastructure spending outstripping current application-level revenue, though it's viewed as a necessary frontier exploration rather than an unsustainable trend.
• High demand for "premium AI assets" is driving up valuations in private funding rounds, leading to a "private IPO" phenomenon where initial rumored prices are quickly surpassed by market interest.
• Some venture capital firms are rationalizing their strategies by focusing on core strengths, as seen with CRV downsizing and not raising a later-stage fund, recognizing that a clear, well-executed specialist approach can be more effective than a diluted multi-platform strategy.

Conclusion

The current market is ripe for companies to go public, as public market valuations are currently more favorable than private ones for raising capital.

Founders should prioritize going public for liquidity and strong investor relationships, as the public market environment offers advantages and often less "pain" than private investors.

The AI industry is undergoing massive, necessary capital investment that, while appearing as a "CapEx bubble" now, is ultimately a long-term, transformative endeavor with significant future growth potential.

Discussion Topics

• Do you think large IPO pops benefit companies in the long run, or do they primarily signal a mispricing that could hurt long-term investor relations?
• How should CEO compensation be structured in high-growth tech companies to truly incentivize long-term value creation rather than short-term gains?
• Given the massive CapEx in AI today, how do you see the balance between investment and revenue generation evolving in the coming years, and what does it mean for startups and established players?

Key Terms

IPO

Initial Public Offering, the process of offering shares of a private corporation to the public in a new stock issuance.

Pop

The increase in a stock's price on its first day of trading after an IPO.

Long-only

Investment firms or funds that only buy and hold securities, generally without using short selling or derivatives.

Hedge fund

Investment funds that pool capital from accredited investors or institutional investors and invest in a variety of assets, often with more complex and higher-risk strategies.

RSU

Restricted Stock Unit, a grant of shares of stock that vests over time, typically treated as ordinary income upon vesting.

ISO

Incentive Stock Option, a type of employee stock option that can receive favorable tax treatment if certain conditions are met, encouraging long-term holding.

PSU

Performance Stock Unit, a grant of shares that vests only if specific performance goals (e.g., stock price targets, revenue growth) are met.

CapEx

Capital Expenditures, funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.

Net New ARR

Net New Annual Recurring Revenue, a metric used to measure the value of new subscriptions or contracts added by a business over a period, net of any churn or downgrades.

Interchange

A fee paid by the merchant's acquiring bank to the customer's issuing bank for each credit or debit card transaction.

Carry

Carried interest, a share of the profits of an investment fund (e.g., venture capital fund) paid to the fund's managers.

LP

Limited Partner, an investor in a private equity or venture capital fund.

GP

General Partner, the manager of a private equity or venture capital fund.

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