Aug 26, 2024 · 1h 11m · news
Imran Khan: Why the IPO Market is Not Closed & Lessons From Taking Snap & Alibaba Public | E1194 · 20VC with Harry Stebbings
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In this episode of 20VC, host Harry Stebbings interviews Proem Founder and CIO Imran Khan, who demystifies the IPO market, explains the strategic advantages of public market discipline over staying private, and shares elite investment banking insights from leading the landmark IPOs of Alibaba and Snap.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 16.4% of the talking time here. How this is scored →
Harry as informed peer 4.0 Guest teaching 5.8 Guest disagreement 3.4 Harry pushing back 3.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 5:51 Mercenaries versus missionaries challenge
Imran forcefully rejects Harry's assertion that stock price dictates company morale, declaring that any founder making that excuse has failed at building a culture.
Hardest push from Harry ▶ 5:28 Harry challenging investor-first perspectiveHarry directly confronts Imran's investor focus by bringing up feedback from active founders who argue that valuation directly impacts internal employee morale.
Biggest teaching moment ▶ 26:43 Explaining IPO pop mechanics and aftermarket demandImran dismantles Bill Gurley's position on IPO underpricing, educating the host on institutional allocation constraints, portfolio manager behavior, and aftermarket buying dynamics.
Harry holds his own ▶ 36:41 Host counter-thesis on VC asymmetric informationHarry articulates a structured counter-argument against VC claims of asymmetric information, highlighting how public market short sellers, activists, and broader variance alter the playing field.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Is the IPO Market Really Closed? Debunking the Myth | 3 | 5 | 5 | 3 | Imran immediately rejects Harry's premise that the IPO window is closed, arguing instead that private company valuations are unrealistic compared to public market GAAP earnings. | |
| The Systemic Problem: Allocators and the Illusion of Volatility | 4 | 6 | 4 | 4 | Imran explains systemic issues with institutional allocators seeking artificial volatility reduction in privates, educating the host on founder responsibilities versus investor roles. | |
| Company Morale and the Choice of Missionaries vs. Mercenaries | 5 | 6 | 7 | 6 | Harry presses Imran with founder feedback that low IPO pricing hurts employee morale. Imran strongly counters that founders blaming price for morale have failed at culture, distinguishing missionaries from mercenaries. | |
| Public Market Discipline: The Ultimate Breeding Ground for Innovation | 4 | 5 | 4 | 3 | Imran calls the idea that companies must stay private to innovate complete nonsense, pointing out AWS, iPhone, and GPUs were created by public companies while Harry cites Shopify's public path. | |
| The Fallacy of Revenue Multiples and Google's IPO War Story | 4 | 7 | 5 | 3 | Imran dismisses revenue multiples as a garbage metric for non-SaaS businesses and shares a war story about getting kicked out of BlackRock while covering Google's IPO. | |
| Operational Discipline: The Blueprint for Low-Growth SaaS | 5 | 6 | 6 | 6 | Harry questions why companies like Stripe should go public when secondary markets exist. Imran argues forcefully that investors claiming founder-first alignment over LP fiduciary duty are spouting nonsense. | |
| Debunking M&A Blockades: From Antitrust to the Wiz Buyout Decision | 6 | 6 | 5 | 6 | Harry cites Figma's $1B breakup fee and Wiz's deal rejection to highlight FTC chill. Imran cautions against blaming antitrust regulators exclusively, arguing seller valuation expectations are inflated and quoting Jack Ma on cats versus tigers. | |
| The IPO Underpricing Debate: Why a Stock Pop is Essential | 5 | 7 | 5 | 5 | Harry presents Bill Gurley's argument against IPO underpricing. Imran explicitly disagrees with Gurley, explaining institutional allocation mechanics and why leaving upside builds vital aftermarket goodwill. | |
| Building Trust: The Human Mechanics of the IPO Roadshow | 2 | 6 | 2 | 2 | Harry asks a foundational mechanics question on book building. Imran explains trust building, cites Jamie Dimon's advice from 2007, and shares conversion metrics from high-profile roadshows. | |
| Pricing Models and Buy-Book Concentration: The Instacart Analysis | 5 | 6 | 2 | 4 | Harry raises Instacart's buy-book dispersion to ask if concentrated allocations indicate quality. Imran confirms this dynamic, detailing how portfolio managers need significant sizing to hold stocks. | |
| Understanding Lockups and the Illusion of Asymmetric Information | 6 | 5 | 3 | 5 | Harry challenges the idea of VC asymmetric information in public markets, pointing to short sellers and activists. Imran acknowledges the contrast between short-term public volatility and long-term underwriting. | |
| Political Policy and the Danger of Unrealized Capital Gains Taxes | 4 | 5 | 4 | 3 | Harry asks about political policy impacts on public markets. Imran refrains from endorsing candidates but criticizes unrealized capital gains tax proposals using real estate and farmland analogies. | |
| The AI CAPEX Dilemma and the Incumbent Productivity Opportunity | 6 | 6 | 3 | 5 | Harry references David Cahn's $600B AI framework and presses on Meta's lack of a cloud business to fund AI capex. Imran frame AI spending around macro productivity and recalls Google's historical AOL deal. | |
| The Origin of the Alibaba IPO & Yahoo Buyback | 2 | 6 | 1 | 2 | Imran narrates his transition from equity research to investment banking after meeting Joe Tsai, laying the groundwork for Alibaba's buyback from Yahoo. | |
| Structuring the Alibaba Buyback & Navigating Capital Markets | 3 | 7 | 2 | 3 | Imran details how he structured Alibaba's $8B Yahoo buyback raise post-Facebook IPO collapse by offering global investors allocation without lockup requirements. | |
| Key Lessons from Alibaba: Simplifying the Narrative | 5 | 5 | 2 | 4 | Imran stresses the importance of simple framing for public investors. Harry presses on how global LPs should navigate China exposure amid regulatory shifts. | |
| Inside Snap: Lessons from Working with Evan Spiegel | 2 | 5 | 1 | 2 | Harry asks about working with Evan Spiegel at Snap. Imran outlines the key traits of elite CEOs: customer empathy, conviction, and high pain tolerance. | |
| Managing Hyper-Growth & Building Snap's Revenue Engine | 3 | 6 | 2 | 3 | Imran reflects on Snap scaling from zero to $1.6B revenue, admitting hypergrowth created immense strain and that building direct response ad tools earlier was a missed opportunity. | |
| Evaluating Snap's Value & the Alibaba Investment | 2 | 5 | 1 | 2 | Harry asks about Snap's valuation and Alibaba's $200M investment. Imran recounts Joe Tsai's humorous advice on taking the Snap CSO role. | |
| Quick Fire Round: Private Markets, Focus, AI, and Tax Returns | 5 | 6 | 4 | 4 | In the quick fire round, Imran criticizes crossover hedge funds doing early-stage venture deals outside their core competency and stresses the importance of after-tax returns. |
Statements from this episode (46)
Khan: IPO market is open, but private company valuation expectations are unrealistic
“I don't think IPO market is closed. I think the issue is companies don't want to go public because their expectations are too high.”
Khan: Startups should IPO earlier and revenue multiples are a meaningless metric
“I'm a big proponent that companies should go public earlier than later, and no revenue multiple is a BS multiple.”
Khan: Private tech valuations have not corrected to match public market realities
“In the private market, that valuation didn't really correct, and so they want to go up public at a valuation that just doesn't make sense in a public market, right?”
Khan: Millennium Management cannot accept any more investor capital
“Millennium cannot take any more capital.”
Khan: Private markets face a talent shortage, not an idea shortage
“I actually don't think there is shortage of ideas in the private market, but I think there are shortage of talent to execute those ideas in private market.”
Khan: Founders obsessing over valuation are neglecting their primary job
“Over obsessing about the valuation of your business is not the right thing to do, because at the end of the day, a founder job is to create business. What is the value of the business? That's the job of an investor. So a founder who obsessed with valuation, th…”
Khan: Morale collapse from falling stock prices signals a founder culture failure
“I would challenge that in that case, the founder failed to build a culture.”
Khan: Employee attrition during stock price drops is good for companies
“But if you hire missionaries who believe in the company's missions, who believes in your leadership, I don't think the stock price make that big of a difference. And actually, if the stock price goes down and those employees leave, it's probably a good thing f…”
Khan: Private market investments face severe write-downs and permanent capital loss
“People didn't write it down to zero or near zero, And that will happen over time, and then people will realize that it's not only a DPI issue, it's also permanent loss of capital. I don't think people are realizing that they have permanent loss of capital in m…”
Khan: Keeping tech companies private long-term risks obsolescence from 15-year cycles
“Why it's really bad from an investor perspective to encourage companies to stay private very long is this technology landscape shift every 15 years. So if you look at, you know, late seventies, early eighties, it was a microcomputer. Mid sixties was mainframe …”
Khan: The top three cloud providers were created by public companies
“AWS was created by a public market company, the entire cloud business. You know, the three biggest cloud providers were public company when they started it.”
Imran Khan: Gross margins rarely improve by more than 100-200 bps
“Gross margins is very hard to control. It is what it is. You know, maybe you can get a hundred basis .200 basis point improvement in a cost, but the people cost is very easy to manage.”
Khan: Revenue multiples work for SaaS, but not delivery or consumer firms
“It's totally fair to look at SaaS business that way, because SaaS business, you know, many of the SaaS business has very high gross margins, and they have a very, very high profit margins at a steady state basis. So you can predict the cash flow Based on the c…”
Khan: Box and Dropbox margin expansion required public market discipline
“Like, I don't think the margins that Box and Dropbox is generating, if they could have generated, if they would just stay private. Because the growth was slowing, they were forced to look at the business and run the business better.”
Khan: Slowing SaaS companies should prioritize margins and capital return
“If you have a business that is growing slower, but relatively steady, I think you should focus on improving your margins, be more cautious on cost, drive more efficiency in the businesses, return capital to the investors, right? Because if you, if you're gener…”
Khan: VCs claiming founder-first loyalty over LPs are dishonest or clueless
“No, because your fiduciary responsibility legally is to your investors who gave you money. Is the guy who manage money for a fire track, you know, fire, you know, fighters, or who manage money for the teachers, You're, they give their pension money to you. You…”
Khan: Existing investors marking up rounds for employee liquidity is problematic
“I don't think it's a great look when you're existing investor marking up that existing deal to give employees the, you know, liquidity. I'm surprised that investors are not, like, allocators are not asking the hard questions.”
Imran Khan: Private firms raising money continually for liquidity is wrong
“If you're a private company and you don't want people's pay, like, don't want to deal with public market, I think that's an honorable thing to do if you make your business profitable and pay it back to other people's money, but constantly going raising money t…”
Khan: High seller expectations, not the FTC, freeze the M&A market
“I actually don't think the M&A market, you can blame, I think people has a reason to blame everything, and right now there is, and I look at it on Twitter all the time, they like to blame on everything. I think the problem in M&A market is also the same thing.…”
Khan: FTC M&A scrutiny is limited to top 20 tech giants
“Top 20 companies will have a lot of scrutiny, and honestly in many cases it probably makes sense to have high scrutiny on the top 20 companies, you know, ah, but other, you know, 1980 companies probably not gonna have a lot of difficulties acquiring deals, so …”
Khan: Public SaaS companies ultimately trade at 7x revenue multiples
“Ultimately SaaS businesses trade seven times revenue multiple, right?”
Khan: Wiz likely made a mistake rejecting Google's $23 billion buyout offer
“When a business is very small, it's very easy to look at the business saying that, hey, this could be a great business, and in a ways very much could be, I don't know, but the reality is, you know, how many times we have seen that every 50 companies we look at…”
Khan: Criticizing 20% to 50% IPO stock pops is misguided
“So I have great respect for Bill Gurley. He's a very, very smart guy incredibly talented, but this one thing I think he, I don't agree with him, you know I think he's over-focused on One day stock pricing. Ah, now listen, if the stock doubles, that's obviously…”
Khan: IPOs with minimal day-one pops cause aftermarket stock crashes
“If they're buying the stock at the price that it doesn't go up, only goes up 10%, they're gonna dollar-weighted average, so they're not gonna go buy the stock. So you're gonna have a supply belt that, you know demand imbalance, they will probably sell the stoc…”
Khan: Successful IPOs convert 90% of one-on-one roadshow meetings into orders
“If an IPO is good, usually, 90% of the meetings that you have one-on-one and a good IPO will convert into an order.”
Khan: Alibaba and Snap IPOs converted nearly 90% of roadshow meetings
“I don't remember the exact numbers, but yeah, both were pretty close to 90%.”
Khan: Initial IPO price ranges should carry 98% execution confidence
“You start with the price that you have a 98% conviction that you can price it at that range, and then you go up from there, and that depends on the demand and the feedback you get from the investors.”
Khan: Large asset managers dump small IPO allocations that lack meaningful scale
“If you give Fidelity a million dollar allocation, they will dump the stock, you know. They might disagree with that, but, you know, a million dollar, you know, ultimately, if you have to think about it, if you're a portfolio manager, right, you're owning 30 na…”
Khan: Pushing for shorter IPO lockups signals insiders lack conviction
“A lot of the VCs, you know, I never like it, but a lot of the VCs push hard to shorter lockup. Hey, the stock goes up a lot and stays up For a certain period of time, then we can sell. But I think that's, if I were like an operator, you know, or a banker, I wo…”
Khan: Public Investors Manage Short-Term Stock Risk Better Than VCs
“So I think Sequoia is right that they have that information and they, if they want to take a 10 years view, I think that's totally fine. But in a one to two years basis, they probably, as you, you're right, they're probably not going to be better than a public…”
Khan: Taxing Unrealized Capital Gains Would Destroy Real Estate
“What happens to the real estates? People who own all this real estate, they are illiquid. Are you going to charge them an unrealized gap gain? So they have to sell the real estate. You're going to destroy the real estate market.”
Khan: Tech incumbents must spend on AI capex or risk business going to zero
“You have to, because what stake is, if you don't spend, your business goes to zero.”
Khan: Larry Page called the AOL revenue-share deal Google's most transformative
“Larry said that the most transformative thing Google did was the AOL deal. Because AOL, they gave them a 95% revenue share when AOL search box was powered by Google.”
Khan: Large language models are entry points like web browsers, not ultimate value
“LLM is just the browser. In my mind, there's like LLM is not different than the browser. Like obviously it's very different, but it's the entry point to what you want to do.”
Khan: Alibaba raised $8B to buy back 20% stake from Yahoo
“We bought back the share and then we had to go raise the money, raise the eight billion dollar to buy back that 20% stake.”
Khan: Waiving pre-IPO lockups for institutional investors has zero company cost
“So that lockup, while it was incredibly valuable to investors who bought that security, had zero cost to the company. So those are very creative transactions. So we give them the no lockup, you know, and they were fine doing the deal, you know, but the cost to…”
Alibaba Pitch Framed Company as eBay, Amazon, and PayPal of China
“The story was positioned very simply that, hey, it's the China consumer play, and they are the eBay plus Amazon plus PayPal of China.”
Portfolio Managers Ignore Pitch Stories Taking Over 30 Seconds to Explain
“If it takes a portfolio manager more than 30 seconds to understand the story, They will never gonna work, do work on that.”
Imran Khan: Lack of regulatory predictability makes investing in China difficult
“The challenge in China is, you know, again, what drive valuation? Consistency and predictability. So right now there is no predictability on regulations, right? So it's hard to invest.”
Khan: Great CEOs Outperform by Underwriting Perceived Risk Through Conviction
“The second and third thing, I think this is actually true for every great CEO. One, they understand their customers. Number two, they have deep conviction, because the reality is return is a function of, you know quote unquote risk, you know, and, you know, an…”
Khan: Snap's finance team questioned acquisition prices that Spiegel underwrote
“So Evan from a day one had a very deep conviction on his product and, you know, like the lenses, acquisitions that we acquired, you know, Evan looked at the product and he knew exactly how people are going to use the product. You know, we finance guys. I'm lik…”
Snap grew annualized revenue from zero to $1.6B in four years
“January one, 2015. Q four of 2018, so four years later, our annualized revenue was 1.6 billion.”
Khan: Snap should have built direct response advertising earlier
“If I were to go back, I would do the exact same thing, but probably start investing in bringing small businesses, building DR business much earlier, you know, so that, you know, it would smooth out the growth rate.”
Khan: It is a mistake to underestimate Snap co-founder Evan Spiegel
“There's a very few people who know how to build great product, and he's one of them, and he has the skill to, that sometimes when you build a great product, you don't have that install base. He has the install base. So, so I think with Evan, you're getting tha…”