Thirteen years ago, Forerunner Ventures began helping to usher in a new era of consumer startups, including Warby Parker, Bonobos, and Glossier. None has gone through a traditional IPO process. Warby Parker was taken public through a special purpose acquisition vehicle. Bonobos was acquired by Walmart. Glossier is still privately held, along with many other design-forward brands in Forerunner’s portfolio.
That’s not a failure, according to Forerunner founder Kirsten Green. In today’s landscape, nearly every alternative to the traditional IPO has become the new norm.
Consider that companies like fintech Chime and smart ring outfit Ōura, founded in 2012 and 2013, respectively, were also early bets for Forerunner and have achieved valuations north of $5 billion, proving their staying power in crowded markets. But while Chime has confidentially filed to go public, Ōura’s CEO has said there are no immediate plans for an IPO.
At News’s StrictlyVC evening late last week, Green made it clear she doesn’t mind. Asked specifically whether she is bothered by Ōura’s CEO, Tom Hale, repeatedly telling the media the company is not preparing an IPO anytime soon despite strong sales, she called the outfit an “off-the-charts phenomenal company,” adding that “we haven’t even gotten to the thought around our table about selling, because we’re here for the growth that’s happening.”
She suggested instead that investors long ago adapted to a world with fewer conventional public offerings, including by turning increasingly to the once-secondary secondary market to manage liquidity and exposure.
“We’re engaged in the secondary market, buying and selling,” Green said of Forerunner’s team, characterizing the shift as both practical and strategic. “Companies are waiting so long to go public. The venture model is generally 10-year fund lifecycles. If you now need to be a double-digit billion-dollar company to [stage] a successful IPO or [become traded] in the public markets, it takes time to get there.” The secondary market is “continuing to drive the industry” and allowing “people to unlock returns and liquidity.”
For longtime industry watchers, it’s a remarkable shift. In the past, firms could expect a major liquidity event within a few years: an acquisition, a classic stock market debut. Yet the growing reliance on the secondary market isn’t just a response to public markets that reward scale and favor already high-performing companies.
Another major benefit, Green suggested last week, is that price discovery is more efficient when there are more participants involved — even if it ultimately means a discount to one of her deals.
Green addressed, for example, Chime, the neobank that became a household name during the fintech boom. Its valuation has zigzagged wildly in recent years, from $25 billion in 2021 when it last closed a primary round of funding from a small group of venture investors, down to a reported $6 billion valuation last year on the secondary market, which typically features many more participants. More recently, it reportedly climbed again to $11 billion.
“In terms of the prices,” Green said, “if you think about it, the round that gets done, the Series D, that was a negotiation between the company and an investor. With the secondary market, you’ve got more people in the mix, right? And then when you [eventually] go to the public markets, you’ve got everybody” setting the price for what they perceive to be the value of a company.
Green can afford to be a little less invested, so to speak, in those later valuations. While it’s always nice to be associated with eye-popping numbers, the firm’s strategy of partnering as early as possible with startups gives it more wiggle room than other venture firms might enjoy. “We try to be early,” Green said, pointing to the firm’s framework of identifying major shifts in consumer behavior and pairing them with emerging business models.
It worked in the early 2010s, when DTC brands like Bonobos and Glossier rode the mobile-social wave to breakout success. It worked again with subscription-first plays like another Forerunner company, The Farmer’s Dog, which sells gourmet dog food and is reportedly both profitable and seeing $1 billion in annualized revenue. And it’s what the firm is betting on now, with a focus on the intersection of invention and culture, as Green describes it.
Great companies, Green noted, need time to develop and not all growth paths look the same. Venture capital, once eager for exits, is learning to wait and, when necessary, to trade.
(You can listen to our conversation with Green from this same sit-down right here, via the StrictlyVC Download podcast; new episodes are published each Tuesday morning.)
