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The cofounder of Allbirds has some advice for startups looking to IPO: make money ahead of going public

Allbirds cofounder Tim Brown poses for a photo in his native New Zealand.
Allbirds cofounder Tim Brown poses for a photo in his native New Zealand.Allbirds
  • Allbirds was one of the last startups to go public in 2021's IPO biltz.

  • Since then, investors have raised the bar for money-losing companies seeking to list.

  • "You need to be a great company, you need to be profitable," says Allbirds cofounder Tim Brown.

Blink and you might have missed it, but the window for privately held companies to go public briefly reopened this year after a nearly two-year hiatus. In September, Instacart, Arm, and Klaviyo went out in quick succession, and other candidates like Chinese fast-fashion giant Shein, Skims, and Reddit have readied their papers in order to follow suit.

The companies that floated initial public offerings this year had something in common: They're actually profitable.

Going public before turning profitable is a thing of the past, according to Allbirds cofounder and chief innovation officer Tim Brown. "You need to be a great company, you need to be profitable," he told Business Insider.

But that wasn't the case when Allbirds listed.

Allbirds
Allbirds' Wool Runners became known as "the world's most comfortable shoes."Allbirds

No profits, no problem

Allbirds was once the It shoe of Silicon Valley, adorning the feet of engineers, venture capitalists, and heads of government. Time Magazine dubbed its hero product — the merino wool sneakers — "the world's most comfortable shoes." The company raised heaps of capital from investors including Maveron, Tiger Global, and Lerer Hippeau. It filed confidentially to go public in the summer of 2021.

Through the pandemic, a dizzying number of startups took advantage of the ripe conditions for going public: high valuations, low interest rates, and roaring investor demand for new stocks. There were 1,115 IPOs in the Americas in 2021, according to PwC — by far the most for any year in this century.

Few of these companies were actually making money. In a low-rate environment, investors have a higher tolerance for companies burning lots of cash in order to grow quickly. Firms like Casper, Rent the Runway, and Peloton showed mounting losses in their S-1 filings.

Allbirds was part of this generation of money-losing companies to go public. Its prospectus to would-be investors highlighted continuing losses even as revenue increased. The direct-to-consumer brand's net loss grew from $14.5 million in 2019 to $25.9 million in 2020. For the first six months of 2021, the company's losses totaled $21.1 million.

Allbirds on Thursday announced a disappointing earnings report.
Allbirds on Thursday announced a disappointing earnings report.Spencer Platt/Getty Images

On its opening day of trading, shares of Allbirds surged 90%, closing at $28.64 apiece, but the jubilee and Champagne didn't last. In a matter of months, companies that sell directly to consumers started to fall out of favor with investors, who were paying closer attention to profits. Allbirds' shares tumbled. Its stock has lost 96% of its value since its public market debut and is recently trading at under $1.

Like other retail brands, Allbirds is also battling rising freight costs and impacts from the war in Ukraine. The company had tried to do more and more items, from wool leggings to puffer jackets, Brown said. In doing so, it neglected the original customers who fell for its walk-on-air sneakers. Customers moved on to newer, hotter kicks.

Allbirds M0.0nshot carbon neutral shoes
Allbirds tried to win Silicon Valley back with a space-age knit boot called the M0.0nshot.Allbirds

Speaking to Insider about the company's ongoing plan to streamline its business, Brown said Allbirds focused on growth "through seven really wild years."

"The path to profitability was something that we always knew was super important and then we hit some challenges," Brown said. "And the public markets have judged us poorly and not just us, a lot of that IPO class."

And judge it has. Crunchbase News' Joanna Glasner reported in October that a selected group of the largest startup offerings of 2021, which includes Coinbase, Didi, Rivian, and Roblox, have shed 60% of their value.

Last week, Allbirds reported another quarter of bruising earnings. Sales dropped by 21% year-over-year in the third quarter as the company discounts items and discontinues others. Shares have lifted slightly, however, after Allbirds began selling its shoes on Amazon earlier this month.

Brown said if he could do it all again, he might have done a few things differently. The company recently relaunched a 2.0 version of the wool sneaker that made it famous.

"People love a comeback and I think they love what we stand for," said Brown, who stepped down as co-chief executive officer of Allbirds in May. "And now we just have to go execute really well."

Read the original article on Business Insider