Estimated reading time: 7 minutes, 8 seconds

Only a few months ago, the global economy was humming along and companies of all sizes were looking to make moves that would improve their bottom lines. When the COVID-19 pandemic struck, the fortunes of small and large companies alike had to adjust to economic hit and the “new-norm”. Reputable tech companies such as Toast Inc., and Airbnb are no exception to these changes but the outcome may not be as bad as we think.

Before the pandemic, a number of relatively large and so far successful tech companies were on the cusp of issuing their IPOs and reaping the subsequent benefits. Over the course of the last several months, companies in the tech industry have taken a variety of measures in response to the situation. Some IPO-ready companies have decided to go ahead with their plans and see what happens when the dust settles. Others have stepped back from the brink, and have decided to re-evaluate their options in hopes of improving their future fortunes.

While either of these approaches may prove beneficial in the long run, there is no doubt that tech companies that choose to wait often have other avenues of financing and support. Private investments and other pre-IPO opportunities can prove to be a current life line and a future boon to tech companies that have been hit hard by the current global health crisis.

Pre-IPO Private Investments can Save the Financial Day

There is no doubt that companies that pull off successful IPO launches can reap many bountiful rewards. Quite often, the company founders and initial investors can make windfall profits when the time comes to sell their shares after IPO offerings. That being said, such successful IPO launches often happen during calm fiscal periods. Plus, even during the best of times a good number of IPO launches end up in failure. Conversely, serious social and economic issues such as major health pandemics can throw financial markets severely out of balance.

For example, the current health crisis has resulted in millions of job losses across the industrial spectrum. Many of the affected individuals and families will be unable to pay important bills such as car notes, mortgages, and loans. As many small, medium, and large companies also begin to feel the financial pinch, both potential individual and institutional investors may drastically rethink their plans. Companies that attempt to maintain course in terms of IPO offerings during such turbulent times risk their own fortunes and those of their investors.

Even though the financial markets have entered uncharted waters and many companies and investors find themselves uncertain as to what to do next, there are large rewards available to those who are willing to adapt.

The founders, managers, employees, and investors of tech companies that are on the IPO cusp may be looking forward to lucrative payouts once their shares are cleared for sale. However, given the current state of the markets, the size and even availability of such expected returns is understandably in doubt. Thankfully, there are stable and robust Private Investment alternatives to traditional IPO offerings that many large and small Tech companies harness to keep their operations going strong.

Alternatives to Traditional IPOs

Even though the going is currently tough in terms of the economy, tech companies, and indeed any firms that produce in-demand products, will likely attract positive interest from a variety of potential financing sources.

For example, privately-held tech companies are generally legally allowed to issue certain types of stock without the need for heavy-handed government regulation. Newly-formed privately held companies often decide that alternative compensation models such as options, RSU's, and warrants are better at attracting and retaining employees. To keep these assets in place and reward them for their contributions, it's common that many tech and other privately held firms issue their employees either shares or options to buy shares in the future as compensation.

Even though some restrictions exist on the practice, it is common form for employees of such privately-held firms to liquidate some of their shares in order to raise funds. Many ad hoc, relatively unorganized markets exist for such securities, but other more well-organized frameworks also exist. Various types of investors that include both institutions and individuals can access these formal and informal exchanges in order to trade in such privately owned shares.

Examples of individuals and entities that commonly take part in such transactions are Accredited Investors. Individuals who have this special status fit certain criteria determined and enforced by financial authorities. The special status of these individuals gives them the ability to trade in a variety of financial instruments without undue oversight and interference. It also makes it easy for them to trade freely in employee held, private tech company shares. As such, accredited investors are one solid potential financing avenue that holders of these privately held shares can liquidate to raise cash.

These examples represent just a few of the many opportunities that await for enterprising privately held company operators. Several current real world examples can give the operators of such companies important insights.

The Curious Cases of Toast and Airbnb

Two major tech companies that serve significant interest to both consumers and investors are Toast, Inc. and Airbnb.

Toast, Inc. is a boston-founded point-of-sales software company that specializes in restaurants. Named one of the fastest growing tech startups since its inception in 2013, Toast raised another $400 million in funding with a $4.9 Billion evaluation in February of 2020, just shy of shelter-in-place measures. Toast was doing considerably well by most common metrics. It had a  large and well-situated workforce as well as a big network of customers and suppliers. This success and future growth projections made Toast a likely candidate for a successful IPO launch. Unfortunately, the pandemic interfered with this process.

The virus and the ensuing social chaos hit restaurants especially hard. Many local authorities now ban gatherings of groups of any size, and such governments often close the doors of restaurants. Such official efforts as well as medical directives have turned such restaurants into ghost towns, and the business of Toast has taken a predictable downturn. This firm has had to furlough or lay off a significant portion of its employee base, and since prevailing health conditions show no signs of improving the situation is likely to persist. As such, those who run this firm have had to strongly reassess any plans to issue an IPO in the near future.

Airbnb is another interesting example. This company has been steadily growing in size and reach over the past several years, and it reportedly entered into several lucrative agreements with large customers recently. Its overall success and the popularity of its core product makes Airbnb a shoo-in for future IPO success. Unfortunately, the current viral pandemic has put plans for such a launch in doubt.

That is unlikely to be the end of this firm, because Airbnb has been a privately held company for some time and has managed to successfully tap into many private pre-IPO opportunities. What's more, according to Airbnb CEO Brian Chesky, his company enjoys great confidence and support from its investor base. This solid support from the private investment community has turned Airbnb's possible non-IPO into a future opportunity for further investment, stability, and growth.

The entrepreneurs who build tech companies put untold amounts of time and effort into their ventures. Many may look to possible future IPO offerings as opportunities to cash in on this sweat equity. Unfortunately, the current economic and social climate has made the success of such offerings much less certain. One thing, however, is certain. A future that holds the promise of fewer IPOs is okay because privately-held tech companies that make useful, popular, and promising products will always hold the interest of a variety of private investment sources; just look at Ripple and RobinHood, but that’s a story for another time.


Karim Nurani is an entrepreneur, investor, and chief strategy officer of Linqto, a leading platform providing liquidity in the private sector. He has 30 years of experience in new business development with a focus on strategy and business transformation.  As a visionary who can assess business models from the perspectives of both an executive and investor, Nurani is responsible for the formation and success of over a hundred startups ranging from mining to process manufacturing. As a partner at Keiretsu Connect, and throughout his time with Bay Angels, Sandalwood Ventures, and other entities, he has guided investors and new venture leaders to the launch and development of markets as diverse as IoT, GreenTech, CannaTech, AR and VR and more.

Last modified on Monday, 18 May 2020
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