On May 25th, 2021, Vimeo(VMEO) went public on Nasdaq as an independent entity at a price of $52.08 per share after completing the spun-off from former parent company InterActiveCorp (IAC). Anjali Sud described this as “dreams” that “do come true,” and she has every right to be proud of what Vimeo has accomplished. The revenue soared 57% from $57 million reported in the first quarter of 2020 to $89 million in the first quarter of 2021, lifting Vimeo from a $20.3 million net loss in 2020 to a $3 million net earnings in 2021. In addition, it is also recognized as a powerful competitor of the old brand online video company YouTube.
Started as a spinoff of CollegeHumor in 2004 that IAC later acquired in 2006, Vimeo has developed to become a rising star in the online video industry across 190 countries. To date, it reports having over 200 million users, 1.6 million among whom pay for subscriptions, with over 350 thousand new videos posted every day. While the recent Covid-19 pandemic locked people inside their homes, it further spurred the online video market. With its distinguishing Software as a Service (SaaS) business model, Vimeo expects the SaaS market to be worth over $70 billion in 2024. Its advantaged position in the SaaS market helped it raised\ $300 million at a valuation of 5.2 and 5.7 billion.
Vimeo’s success paves its way of going public on Nasdaq by itself, allowing IAC an opportunity to spin off it. To spin off a subsidiary, according to Investopedia, means to create a newly independent company and distribute its shares among the parent company’s shareholders. Doing so would allow the new company to have a separate management structure and a new name while, in most cases, continuously receive various kinds of supports from its former parent companies.
In general, spinoff usually happens when the parent company shareholders expect a subsidiary to be worth more as an independent entity than a unit of the parent company. Sometimes, spinning off a subsidiary allows both the parent company and the spin-off to better focus on their own strategy, especially when the subsidiary is going in an opposite direction of the parent company.
In the Vimeo case, IAC shareholders decided it best their interest to spin-off Vimeo, and they received 1.6235 shares of Vimeo for each share of IAC common stock they hold. Independent from the IAC, Vimeo announced its appointment of the board of directors and the executive officers of the company. The board of directors now consists of Adam Gross, Alesia J. Haas, Kendall F. Handler, Ida Kane, Mo Koyfman, Spike Lee, Joseph Levin, Nabil Mallick, Glenn H. Schiffman, Anjali Sud, and George C. Wolfe. In addition, Anjali Sud was appointed the Chief Executive Officer, Michael A. Cheah the General Counsel and Secretary, Mark Kornfilt the President and Chief Product Officer, and Narayan Menon the Chief Financial Officer.
As Sud described as a dream that came true, going public is probably the de facto goal for most start-up businesses, and it means much more than a symbol of success. Going public benefits companies in many ways, providing them with advantages that few private companies enjoy. The most obvious benefit of going public is in respect to fundraising. It is much easier for a public company to raise funds from the public market to meet its needs. As FindLaw writes, “[n]ew capital is raised without the associated risks, restrictions, and costs of debt or the constraints of venture capitalists.”
Moreover, going public also raise public awareness of the company. Since a public company is known to more people, its products are more likely to be known to potential customers, thus enjoying a larger market share. In addition, along with this publicity comes credibility because a company must go through intense scrutiny before going public. Since most customers lack the professional knowledge of examining the quality of a product before purchasing it, they heavily rely on government regulators and the company’s fame when deciding which product to buy. The customer would be more confident with the accountability and professionalism of a public company. With this trust, public companies may generally do better in attracting customers.
Going public also provides an ideal exit opportunity for shareholders who had devoted themselves to the company for years without receiving matching financial rewards. Initial public offering usually provides a potential opportunity for them to liquefy their efforts (shares) and assets in the company for a massive amount of money. Although they have to wait until trading their shares on a secondary market to receive the cash (an IPO does not automatically liquefy for shareholders who wish to do so), going public is still an excellent opportunity to exit.
A public company would also be benefited from a lower cost of capital. Besides directly raising money from the public through IPO, public companies usually obtain loans from banks at a lower interest rate. Banks determine the interest rate of a loan based on the debtor’s ability to repay the loan. Young and small companies usually receive loans with higher interest rates because banks find a higher risk of bad debt. In contrast, public companies receive discount interest rate because it has gone through intense auditing under PCAOB standard even before the IPO process begins.
Stocks of public companies also have higher liquidity, providing public companies an alternative means of payment. In contrast, stocks of private companies only have cash value when there is an ideal opportunity to exit. Stocks as a means of payment helps public companies to acquire other companies without having a massive amount of cash drawn out of their account, which might impair their daily operation. It also allows public companies to compensate its employee with stocks, especially when they want to attract top talent in the industries.
On the other hand, going public has some downsides as well, and the most general one is the burdensome disclosing obligation. The Securities and Exchange Commission of the United States requires public companies to disclose their financial status to the public quarterly to protect the interest of investors. The process can be costly and confusing, as it requires more stringent financial controls, regular auditing, and lots of paperwork to be done. If that is not enough, the process of going public itself can be even more troubling, costing companies’ significant amount of time and resources.
We can assist you in getting through these complicated procedures of going public and helping you have your dream come true. Wilson Bradshaw LLP is a boutique securities law firm in Irvine, California, and New York City. We offer the advantage of a highly focused, experienced legal team that understands business realities. Our practice is dedicated to helping businesses prosper by providing cost-effective services without compromising quality. Please visit our website or contact us through email for anything you need.