Business

How one entrepreneur plans to fix the ‘broken’ IPO process

For technology founders, an IPO is like marriage: It takes years of preparation, and it’s a pain to have to report to someone, but it’s usually the ultimate goal.

Equidity‘s outspoken founder and CEO, Mona DeFrawi, sees some major structural problems with the IPO process. Namely, she said that markets have shifted from being investor-focused to trader-focused, and “no one has noticed.”

Mona DeFrawi believes the IPO process is broken.

Above: Mona DeFrawi believes the IPO process is broken.

This has resulted in tech companies failing to attract the “right buyers,” according to DeFrawi.  Traders will typically only hold on to stock for less than 24 hours so they can make money if the stock pops or drops. Meanwhile, long-term growth investors care about the “fundamentals,” meaning the company is less likely to crash.

To support private companies that are readying for an IPO, DeFrawi (a serial entrepreneur and former lecturer at Johns Hopkins University) is distributing invitations for 130 high-growth companies to participate in a beta service called “Equidity 360 degrees.”


Related: Read our IPO predictions for 2013.


The private companies that accept the invitation will be connected with long-term growth investors; they can securely share financials and key company information in advance of an IPO.

Equidity will make money through selling its advisory services. It’s a similar business model to DeFrawi’s previous company, InsideVentures, which was acquired by investment platform SecondMarket in 2009.

DeFrawi will help these pre-IPO companies line up investors that are in it for the long haul and not just for a few short hours.

“These companies wouldn’t put their software out without sales and marketing, but they do it with their stock all the time,” said DeFrawi. During her career, she has also worked in investor relations — a role which believes is undervalued, misunderstood, and that some consider as a “chick job.”

She said most investor relations professionals are adept at paperwork and scheduling conference calls with analysts but forget about the marketing and business development work that is needed to attract growth investors.

With companies like Dell going private, DeFrawi fears that tech startups will delay an IPO for as long as possible. She cites research that over 90 percent of job growth occurs post-IPO (although media reports suggest this may be overblown).

As part of the beta launch, DeFrawi compiled a list of tech companies that are in a strong position to IPO, which she shared with us. They include:

  • Cloud storage and CRM: Dropbox, Sugar CRM, Box
  • Consumer tech: Eventbrite, Gilt Groupe, Living Social
  • Business software services: Docusign, SurveyMonkey, Marketo, and Evernote
  • Next generation storage: Violin Memory and Nimble Storage
  • Wearable computing and health: Jawbone and Zocdoc

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