LegalZoom to Pull IPO

January 8th, 2014

In February 2012 I blogged that LegalZoom was planning on going public. They filed for a $120 million IPO in May 2012. Now, they have changed plans, and will sell more than $200 million in equity to Permira, a European private equity firm.

“It’s a large capital raise,” LegalZoom chief executive John Suh told Law Blog on Monday night. “Our intention is to notify the SEC that we will be pulling the S-1 prior to the close of the deal. We have not formally pulled it yet.”

The move will make the Permira-backed company the largest LegalZoom stakeholder, according to a joint announcement by LegalZoom and Permira. Mr. Suh declined to say what percentage of the company that stake represents. Other big stakeholders include Polaris Venture Partners, Institutional Venture Partners and Kleiner Perkins Caulfield & Byers.

Why the change? WSJ Law Blog suggests that the time isn’t the “best time for tech startups to go public.”

“It’s a large capital raise,” LegalZoom chief executive John Suh told Law Blog on Monday night. “Our intention is to notify the SEC that we will be pulling the S-1 prior to the close of the deal. We have not formally pulled it yet.”

The move will make the Permira-backed company the largest LegalZoom stakeholder, according to a joint announcement by LegalZoom and Permira. Mr. Suh declined to say what percentage of the company that stake represents. Other big stakeholders include Polaris Venture Partners, Institutional Venture Partners and Kleiner Perkins Caulfield & Byers.

Though this does not seem to foreclose a future IPO.

LegalZoom had also launched a new research and development center in 2013 and rolled out a number of new products that had yet to establish a track record of results, he said. “Being public isn’t the best environment for that,” Mr. Suh said. “It’s very difficult to guess what the renewal rate will be on a product one month after you launch it… What the public really wants is a predictable stream of revenue and profits.”

Does this rule out a subsequent IPO for LegalZoom? With up to $200 million set to come in through the Permira investment, “there is not an imminent need for capital that would cause us to go public in the immediate future,” Mr. Suh said. “It allows us to continue to focus on the innovation of products and services.”

I’m expect critics of LegalZoom’s approach to legal services will take this as a concession that their business model is not working. As I noted last year, in Legal Zoom’s S-1, they acknowledged the lingering concern of UPL suits:

 

We’ll see.