The Startup Ecosystem and the “Zuckerberg Effect”

No one knows what fate– or the NYSE–will have in store for LinkedIn following today’s madcap opening. But venture capitalists like Benchmark Capital’s Bill Gurley say the company’s $9 billion IPO should have one immediate effect, finally putting to rest Silicon Valley’s long-running apathy toward IPO’s, aka, “The Zuckerberg Effect.”
While much hay in investment circles has been made over “the death of the IPO” and the emergence of the M&A as the future end game for venture capitalists, Gurley doesn’t see it that way at all.
It’s true that household-name, blockbuster internet IPO’s have been on the decline since the first dot-com bubble. Meanwhile, for much of the past decade, big players like Google (s GOOG), Apple (s AAPL) and Microsoft (s MSFT) have been gobbling up companies at a ferocious pace. The market  naturally came to rely on mergers and acquisitions.
But these public giants are not making the large-scale acquisitions they once did. Conversely, says Gurley, the IPO market is already showing healthy signs of delivering. He looks to recent successful public offerings such as Green Dot (s GDOT), Opentable (s OPEN),  (s ACOM) and Solarwinds (s SWI) to name a few. Meanwhile, companies like Kayak, Groupon, HomeAway and others are expected to hit the public market soon.
For Gurley, today’s high-profile LinkedIn IPO should put to rest any lingering belief that the IPO window is still slammed shut– regardless of how the stock performs in the future.
“There has been this malaise in the valley that the IPO market was dead,”  Gurley says.” The last remaining naysayers will finally have to put that to bed. For some people, today will be a wakeup call, it has to be.”
Public investors, like the buyers of mutual funds, are craving IPO’s for the access to growth they represent. “The buy side of the market has been desperate for more product,” Gurley says.
But from the startup side, the reticence to go public is still hanging over the bay area like so much fog. Gurley and others argue Facebook founder Mark Zuckerberg’s famously coy attitude towards an IPO has helped fueld the perception that going public is a buzz kill.
“There is still a strong sentiment among many people in Silicon Valley that’s its much better to stay private if you can,” in order to keep total control of  the company and avoid the hassles of  shareholders to worry about, said Mike Volpi, a partner in the London office of Index Ventures.”Obviously, Mark Zuckerberg is a strong influence.”
Gurley elaborates: “Zuckerberg is a popular and well respected figure, so his decisions hold weight. But most companies aren’t Facebook,” he says. And now, with the market primed for more big ticket IPOs, the following  potential IPO candidates won’t be able to hide behind the idea of a market not ripe for their arrival, he said.
Still, after today’s valuation, Gurley also cautions the market from getting over eager and throwing more dollars at future offerings than they are worth.
LinkedIn is unique asset because it has no real competitors, very heavy barriers to entry, high profit margins, completely organic traffic growth with little in the way of marketing. It also has no dependencies.
“It doesn’t live on the back of Facebook, Google, Microsoft,” he said.
Gurley isn’t the only venture capitalist who predicts an IPO tipping point as a result of recent activity.
Manu Kumar, founder of K9 Ventures, compares the LinkedIn IPO  to the Netscape IPO “before Bubble 1.0 or the Google IPO post-Bubble 1.0.” He thinks LinkedIn could set the stage for other companies that are sitting on the edge of filing for their own public offering. Meanwhile,  the liquidity created by these successes (either in the public market or in the secondary market) will hopefully  increase the amount of money flowing into the startup ecosystem.
Of course, Kumar should have a great affinity for LinkedIn. The co-founder of CardMunch sold his startup to LinkedIn in January of this year.
“The startup eco-system has been anxiously awaiting for another beacon and another indication that things are live and well,” he said. “The excitement around the LinkedIn IPO has the potential to do just that. Kind of a “we’re back” signal to startup entrepreneurs who are sitting around trying to hatch their own startup dreams.”