Private equity veteran Henry Kravis has spent decades buying out companies and then taking them public again. His advice to today’s hottest tech startups? Don’t schedule an IPO unless you have a really good reason to raise the capital.
“I’m not going to tell any company they shouldn’t go public,” said the co-CEO of private equity powerhouse KKR (KKR) on Monday in an on-stage interview at Fortune’s Brainstorm Tech conference in Aspen, Colo.
But in the current environment, in which it’s relatively easy for these companies to raise cash while remaining private, he would advise against them exposing themselves to the scrutiny of Wall Street too soon. “I’d tell them to wait so they don’t have to go quarter-to-quarter. I think the worst thing to happen to corporate America is quarterly earnings.”
Kravis is bullish on technology, but with caveats. When he was asked if he would invest in an index of the roughly 100 so-called unicorns, privately-held tech startups with market valuations of $1 billion or more, Kravis offered a note of caution.
While he sees many startups with long-term growth potential, Kravis said today’s elevated valuations raise the stakes. “I can’t tell you, and I don’t think anybody could, the winners in each industry,” he said. But the prices being paid by investors suggest that there will be two or three winners in certain business segments. “I don’t think that’s necessarily true.” Picking the losers could be especially painful for VCs jumping in at a potentially frothy moment.
Overall, Kravis, who admitted that he has Facebook and Twitter accounts but doesn’t use them, feels that Silicon Valley has come a long way since the tech bubble of 1999 and 2000. Back then, he said, he often met with companies that had no business plan other than “to go public.”
“Fast forward 15 years, we have a totally different environment,” said Kravis. Entrepreneurs are building real businesses. To make sure they live up to their potential, Kravis said he urges young companies to “define your culture as early as you can.”
In recent years, KKR has branched out from its traditional focus on private to make venture capital investments in some of these promising companies, such as wireless music systems startup Sonos and fantasy sports site FanDuel.
In evaluating these investments, said Kravis, he pushes his team to look at what could possibly go wrong. “What disruptor is out there that can make this company absolute or ether change operations dramatically?”
Kravis shot down any speculation that he might be ready to leave behind his long successful career in finance for an opportunity in government. When asked for his reaction to Donald Trump’s recent comment that The Donald would consider naming Kravis as Treasury Secretary if he were elected president, Kravis said simply, “That was scary.”