On Friday, I had lunch in L.A. with Paula Sutter, best known for turning around Diane von Furstenberg in the early 2000s. These days, Paula mostly works behind the scenes, sometimes advising, sometimes investing, other times as a board member. She sees a lot. We got to talking generally about the M&A scene, and why so many of the fashion businesses that went public a few years ago are now penny stocks, and what it takes to meet investor (and consumer) expectations in this era.
Our lunch capped off a week filled with phone calls to analysts and investors, some about Alo Yoga—the Los Angeles-based activewear-plus brand looking to raise private capital at a $10 billion valuation—and others about Tory Burch, which WWD reported has hired Morgan Stanley to explore “options,” which the paper speculated could be an I.P.O. or sale.
Is it a good time to go public right now? Obviously not, given the paucity of companies doing so, the scarcity of a pipeline, and the fact that investors have less risky ways to make money in an environment where Treasuries alone yield five percent.
Also, the public markets have punished the last generation of companies: Farfetch, The Real Real, Rent the Runway, and Allbirds are all trading at under $2 a share. These are all very different businesses, but they share a common trait: they’re not growing, they struggle with profitability, and they only went public because their V.C. investors were impatient and demanded an exit. For The Real Real and Rent the Runway—both businesses that I admire from a use-case perspective—the unit economics have never made sense, especially once their growth trajectories plateaued.