I don't think Google is much of a threat, they seem to hate Gvoice internally having had several opportunities to make it a platform and passing (yes they used to have voice APIs on code.google.com). Bottom line, I don't think Google gets it (kind of like Facebook and web search)
And since the Unicorn Feeding stations have all been shut down :-) unprofitable companies of this size have three choices, IPO, die quickly, or try to shrink into a profitable chunk and bootstrap slowly into larger growth. I commend them for the IPO route, I expect to see more companies in this spot. This path also gives employees some liquidity but if they did a big reverse split prior to the S-1 its possible the employees will have underwater options at the IPO, anyone working there care to comment on that?
Re the options, the S-1 says: "As of March 31, 2016, we had outstanding options to purchase an aggregate of 16,704,752 shares of our Class B common stock, with a weighted-average exercise price of approximately $5.57 per share, under our equity compensation plans. After March 31, 2016, we issued options to purchase an aggregate of 671,550 shares of our Class B common stock, with a weighted-average exercise price of $10.30 per share, under our 2008 Plan."
Assuming they're going to IPO at more than $10 per share (which is usual) and that the option strike price has not gone down (so all the options issued prior to 3/31/16 were at a strike less than $10.30 per share) it looks like almost all the options would be in the money to some extent.
Given the way you laid out those scenarios, would you agree then that the goal then of IPO is finding a greater fool on Main Street and passing the buck while they can?
Is there anything here that indicates that the cash infusion from an IPO would get them on the track to profitability?
Yes, in general the bargain is that in exchange for accepting some additional constraints on behavior and a required level of transparency, you can sell securities to non-qualified investors (aka the Greater Fool in your comment).
That said, I'm not sure I would be willing to invest at the IPO but if Twillo can show they are getting traction on their business plan and reach profitability, then I would consider investing in them at that stage.
I have no experience with IPOs but as a Twilio customer they've been pushed a revamp of documentation, client libraries, their user interfaces, as well as several new products in the past ~6 months. My guess is an IPO would enable them to continue that. That or they just did it for a little hockey stick in revenue before the IPO.
IANAL but citation needed. An ISO is granted against a certain point in time, and would be affected (as in, included) by a split at a future time. So in a 2:1 split you'd get double the shares at half the price. Other way simply doesn't work as that would screw your cost basis up and IRS would get all green and angry at you :)
The easiest way to screw people is to issue another set of shares and dilute.
Can you elaborate on the exact financial implications of a reverse split prior to IPO? This Brad Feld article [1] seems to say the aversion to this is simply emotional.
Company, running privately for years and years, marginally cash flow positive but requires additional capital to expand, or develop the next product, or build inventory. Employees get refresher grants annually with an ever increasing strike price from .10 - 3.50 over say 8 years. Now during the road show the bankers say "You're company is really worth about 1/10th what you think its worth according to this feedback, we either cut off the roadshow or we recaptialize at a lower valuation." So the company does a 50:1 reverse stock split to get its outstanding stock numbers in line with the expected valuation of the company.
I'm not an accountant, but I've listened to a lot of accountants explain what is, and what is not, taxable. In this case, if you let your employees take a haircut (so their $1/share strike price is now $50 a share on a company expected to go out at $18) that isn't taxable (and it bites to be an employee). If your employee exercised their shares at the lower cost (to avoid capital gains etc) they now have a 'basis' value of $50 a share so if they sell shares at $18 the can claim a $32 / share capital loss. If you take back the vested but unexercised shares and issue vested shares at a new lower price, that price can be no lower than the pending IPO price (FMV) or it's a taxable event. And then when your company makes it out the gate and your long suffering investors cash out their funds, it pushes the price down around $8 once again putting your employees in a position to exercise at a loss or leave them on the table.
The key though is the company went through a period higher valuation, and employees are issued shares at the higher valuation and at IPO time the company is worth less than it was when you got your option, so your strike price is "high" relative to the company value.
tesla is a good example of a company that did this at ipo.
really, there are no financial implications. the valuation of the company stays the same with a split, but the price of the stock changes proportionate to the quantity outstanding. valuation = # shares * $ per share
what the reverse split does (or split - as twilio did a 2:1 split just over a year ago) is put the cost per share in a range that appears more attractive to buyers. in today's market, that is ~$15 +/-5. so if the internal valuation pre-IPO has the stock at $8, the company often reverse splits 1:2 and then you have an initial price back at $16. that way you don't look like a penny stock going out the door.
And since the Unicorn Feeding stations have all been shut down :-) unprofitable companies of this size have three choices, IPO, die quickly, or try to shrink into a profitable chunk and bootstrap slowly into larger growth. I commend them for the IPO route, I expect to see more companies in this spot. This path also gives employees some liquidity but if they did a big reverse split prior to the S-1 its possible the employees will have underwater options at the IPO, anyone working there care to comment on that?