Why SurveyMonkey is holding off on an IPO

January 17, 2013: 9:00 AM ET

SurveyMonkey's CEO had a front-row seat for Facebook's rocky IPO. He's in no hurry to follow suit.

surveymonkey-ipoFORTUNE -- Forgive Dave Goldberg, chief executive of rapidly growing SurveyMonkey, for not being in the slightest rush to take his 13-year-old company public. Let's just say he has lived the downside.

"I took my first company public and worked at Yahoo (YHOO) for seven years, and I saw plenty of decisions made because of what it would do to the stock price that week," he says. One of Silicon Valley's best networked (and well liked) executives, Goldberg also witnessed up close last year's most tumultuous IPO, the still-underwater debut of Facebook (FB), where his wife, Sheryl Sandberg, is chief operating officer. "There are lots of good reasons for going public," says Goldberg, ticking off growth capital, brand recognition and credibility with business customers as chief examples. "We just don't have any of them."

And yet, SurveyMonkey—which offers cheap, easy-to-use online surveys—has two reasons for raising capital. One is to reward the investment firms, Spectrum Equity and Bain Capital Ventures, that bought the company nearly four years ago, when it was about a fourth its current size. The other is the perennial tech-industry rationale for an IPO: so SurveyMonkey's employees can sell some of the stock that is a significant portion of their compensation.

Then there is the fact that SurveyMonkey undoubtedly could go public. Its revenues, $113 million last year, are growing at a 40%-plus clip. Earnings (less interest expense, taxes and depreciation and amortization) were $61 million, a software-like  margin of 54%. Its "freemium" model—new users pay nothing, though significant numbers convert to paying accounts—encourages consistent growth because its sucks in customers slowly. The company has 2 million active users, about 360,000 of whom pay in the neighborhood of $200 to $300 a year for enhanced survey features.

And so, rather than go public now, Goldberg plans to raise nearly $800 million in equity and, in a rare move for a rapidly growing Web company, debt. Tiger Global Management and Google (GOOG) invested in the $444 million equity round SurveyMonkey closed in December. (Goldberg and Sandberg are investing as well, accounting for $50 million of the equity financing.) Other new equity investors include Iconiq Capital, the money-management firm that handles the personal wealth of several top Facebook executives; Social + Capital Partnership, a venture firm associated with prominent Facebook alumni; and Laurel Crown Partners, a venture and private-equity firm in Los Angeles. The new financing—a recapitalization in Wall Street jargon—values SurveyMonkey at $1.35 billion.

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The balance of the capital will be $350 million in debt being raised by a syndicate led by J.P. Morgan Chase (JPM). For a company like SurveyMonkey, whose assets are typically minimal compared with, say, an industrial concern, to be taking on so much debt is unusual—but potentially a window on the future of Silicon Valley finance. What the company lacks in equipment it makes up for in cash flow. Says Goldberg: "We generate all this cash and don't have any use for it." Jimmy Lee, vice chairman J.P. Morgan's investment bank and a debt-markets veteran, says debt for tech companies can smooth out their growth  trajectories. (Lee helped orchestrate the debt deal.)  "The longer Dave is able to build out SurveyMonkey without being on this 90-day cycle of satisfying Wall Street the better," says Lee. "Then he can go public when it's of strategic value to him."

SurveyMonkey has had an unusually charmed life. Begun in 1999 in Madison, Wis., by a software developer who wanted to conduct an online survey, it had just 14 employees but sales of $27 million and cash flow of $23 million by 2008, when Spectrum and Bain took control. When Goldberg arrived as CEO, SurveyMonkey did business exclusively in English and U.S. dollars, and customer service was available only during working hours in Portland, Ore., where the company had relocated several years earlier. Today the site supports 15 languages, accepts payments in 29 currencies, yet remains relatively lean at 200 employees. (SurveyMonkey kept its name, says Goldberg, because it is memorable. Recipients of its surveys often search "Monkey Survey" to remind themselves of the service they used.)

Goldberg, who sold his first company, Launch Media, to Yahoo,  knows this round of financing isn't a permanent solution. After all, his new investors will want liquidity one day too. "It's not that I think being a public company is a bad option for everybody," he says. He just intends to go public—or pursue some other innovative financing—when he's good and ready.

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About This Author
Adam Lashinsky
Adam Lashinsky
Senior Editor at Large, Fortune

Adam Lashinsky is a San Francisco-based editor-at-large for FORTUNE, covering Wall Street and Silicon Valley. Lashinsky joined FORTUNE in 2001, after two years as a contributing columnist. Prior to joining FORTUNE, Lashinsky covered Silicon Valley for TheStreet.com and The San Jose Mercury News. A Chicago native, Lashinsky holds a B.A. in history and political science from the University of Illinois at Urbana-Champaign.

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