We took Backblaze public one year ago tomorrow. Our IPO was a great day and the realization of 14 years of hard work by our team. Since then, we’ve executed on our plans, hit our targets, and continued to grow our team and our revenue. And yet, the markets have been tough sledding. For newly-public tech companies like us, as well as many of our peers, stock values have decreased by ~70% from their peak values last year. It’s hard for shareholders, employees, and the market.
Obviously I wish the last 10 months would have gone differently in the markets, who doesn’t? But when people ask me, (which happens a lot) “Do you still think the IPO was a good idea?” There’s no question in my mind that it was one of the best business decisions we’ve made at Backblaze.
In fact, the more that I think about our experience of taking the company public, the more I believe that the IPO should be part of every entrepreneur and business leader’s consideration set. A perception has developed that there are magical financial benchmarks that forbid some companies from listing, but we went public at a point in the evolution of our business when a lot of experts told us we couldn’t. We may have faced some headwinds others didn’t, but I’m convinced that the IPO isn’t just for folks with over $300m in revenue who’ve raised hundreds of millions of dollars in venture capital.
So, in keeping with our commitment to transparency about our business and some of the interesting, tough, and exciting stuff we’ve been through—long-time readers will remember my blog about almost getting acquired—I’ve decided to write about our IPO journey: What sucked, what didn’t, what shocked us, and what we learned. Along the way, I’ll share everything I can—metrics, worksheets, planning decks, and more. Not because I think we deserve a pat on the back or to celebrate what we did, but for two bigger purposes:
- I can remember what it feels like to be an early stage entrepreneur thinking that the only path to making the company you built successful was to seek out restrictive venture funding or seek out an acquisition. I want to offer folks—whether you’re considering starting a business or have already built one with tens of millions in revenue—that there is another path to consider. While doing an IPO isn’t right for everyone, I think considering an IPO, and positioning your business to go that way if the opportunity arises, is sound strategy.
- I believe that democratizing the IPO process will be healthier for businesses, markets, and investors. And I’m not the first: Bill Hambrecht is well known for his efforts to open IPOs to broader audiences as he did with companies like Google and Overstock.com. Tech is all about disrupting unnecessary complexity, and going public is more complex than an AWS invoice. In the mid-nineties, there were more than 8,000 publicly traded companies. By this September there were nearly 2,000 fewer companies listed, even after the boom we saw in 2020 and 2021. I don’t think that’s a good thing.
This blog series will be for everyone from those of you dreaming up your first idea, to startups still in stealth mode, to the thousands of companies with revenue in the tens of millions.
And if there’s anything I talk about here that’s confusing or that you want to hear more about, please ask in the comments. I’ll try to cover it in a future post.
Why Listen to Us?
Hot takes on building startups and raising funding are a dime a dozen—so if you’re skeptical, I get it. What we’ll share here is partially based on the experience we had building two prior technology companies, raising multiple rounds of venture capital, and successfully selling them through acquisition. However, more uniquely: We founded and essentially bootstrapped Backblaze all the way up to our IPO (before 2021 we had only taken $3M in outside funding). Even CNBC noted that we took a unique path to market, and yet with $65 million in recurring revenue in 2020, we made a successful public offering and raised over $100M in funding to continue growing our business. We’ve made this journey ourselves, we did it recently, and—in the spirit of transparency—we’re going to share the stories behind it.
Why an IPO Should Be in Your Business Consideration Set
Why should IPO readiness (the process of setting up your business to go public) and actually going public be in your playbook? I’m going to explore this concept deeply over the course of this series, but I’ll pause here to tell you the five most compelling reasons to be IPO ready, along with a few proof points from our own experience.
- Build to Last: Starting and growing a company is hard. If you’re doing it, it’s probably because you’re passionate about solving some problems in the world. To be successful, you had to care about your vision, your product, your customers, and your team. If your company ends up acquired, the unique entity you created will vaporize. Taking your company public provides a path to building and running the company for the long-term, possibly outliving you.
- Funding With the Right Strings Attached: Raising funding in an IPO requires selling a portion of your company, just as in any venture funding. The difference, however, is that in an IPO the equity you sell is common shares—everyone gets the same shares on the same terms. In private fund raises, the company sells “preferred shares” to investors which typically come with a variety of special rights giving investors the ability to have extra control over the company, get extra equity in the company, prevent the company from raising money from other investors, and more. Raising funding in an IPO is the ultimate “clean” fundraise.
- Building a Real Business: If you’re building with an aim to be acquired, it’s nearly impossible to not establish a culture at the company where everyone is focused on “dumping” the business. By aiming for an IPO, it drives the mindset to build for sustainability. You’re more likely to create a business that can achieve profitability, scale, growth, and deliver value over the long haul. Also, going through the actual process of IPO readiness, along with the process of feeding your financials through a meat grinder of ROI modeling and outcome driven planning—both during and after the IPO—means you will position your business for even greater resilience going forward.
- Credibility: When the five Backblaze founders talked about IPOs back in the day in a tiny apartment in Palo Alto, it felt like we were trying on our dad’s pants. Sure, we knew some companies went public—but it didn’t feel like something that was really accessible (even for a room of people that scaled and sold multiple companies). But we’re not the only people who feel this way: “Public” signals a level of accomplishment and evolution that’s hard to achieve as a private company. Being able to achieve an IPO proves a business’s capacity to operate and excel under intense pressure and scrutiny. And if anyone is uncertain about how we’re doing, they can just go grab the last 10-K to see our results.
- Liquidity: This one is simple. If you’re not public, you can’t sell your stock on the open market. Once the company is public, you and your employees (and existing shareholders) can sell their shares if they so choose. It also provides the freedom and flexibility for each individual to make that decision on their own. Rather than having to sell the company (wherein usually everyone is forced to sell all their shares), this allows one person to decide to stay “all-in” and keep all their shares, another one to sell theirs, and a third to sell just a few shares.
If you’re intrigued, this is really only the tip of the iceberg. In future posts, I will dig into everything from the nitty gritty tactics—like how to build a board, how to build a banking syndicate (twice), and how to write an S-1—to the bigger stories—like how years of planning can hinge on a few hours of work, or why “testing the waters” might be better named “getting thrown to the sharks”.
Rest assured: If you think you’re not interested in going public, everything I share will have as much to do with how you build a better business that you can grow over time as it will with the guts of the IPO process. I hope it’s useful, and if there’s anything you hope I’ll address or anything specific that you’d like to learn more about, let me know in the comments.