Amish Shah, CEO and founder of Millennium Search and managing partner at Sierra Maya Ventures, was recently heard voicing his opinion on Fox Business about the problem of too many tech startups rushing headlong into IPOs. On Money with Melissa Francis, Shah, along with Capitalist Pig Hedge Fund Manager Jonathan Hoenig, voiced their thoughts on the announcement that Zulily, a somewhat profitable flash deal site, has announced its plans to go public. This, following a similar announcement from Twitter earlier this year, has caused many investment professionals to wonder whether or not tech companies are being too quick to rush for IPOs.
As a tech startup investor, Shah has an interesting perspective on the issue at hand. While Hoenig stated he felt that this was a good thing and a natural outgrowth of capitalism, Shah disagreed. When host Melissa Francis asked whether this was a repeat of the tech startup bubble in 1999, Shah indicated that he thought it was.
“It’s definitely a repeat of 1999. If you look recently, we’ve heard of candy crush going public. Are you kidding me? A game like that going public out there? Yes, I am for capitalism as an investor, but there’s lots of risk in what Zulily is doing. I think there are better players out there that are going to be going public, like Square.”
Zulily and Twitter are considered high risk investments because they are posting little to no profits. Zulily had a profit of just over $2 million in the first half of the year. While these aren’t horrible numbers, they aren’t highly successful numbers either. Twitter is doing even worse, yet these tech startups are pushing for IPOs.
Zulily and Twitter aren’t the first tech startups to attempt to go public, and perhaps they should look at the successes, and failures, of their past counterparts. “They should learn from Groupon,” warns Shah. “If you look at Groupon, it’s a total bust.”
Hoenig, while he was happy to see these tech startups, indicated he would not be buying them for his clients. Shah indicated getting in on the secondary market may be a better choice for investors interested in investing in these start up companies.
The interview originally aired on October 9 and can be viewed here: