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Uber prices IPO at $45 per share, raises $8.1B

Posted by on May 9, 2019 in Finance, Fundings & Exits, IPO, TC, Transportation, Uber, Uber IPO | 0 comments

Uber has set its initial public offering at $45 per share, per reports, raising $8.1 billion in the process.

The price, which falls at the low end of Uber’s planned range, values Uber at $82.4 billion. Uber confirmed the price in a press release Thursday afternoon.

The pricing comes one day after drivers all over the world went on strike, with drivers in San Francisco protesting right outside the company’s headquarters.

Uber filed for its IPO last month, reporting 2018 revenues of $11.27 billion, net income of $997 million and adjusted EBITDA losses of $1.85 billion. Though, we knew this thanks to Uber’s previous disclosures of its financials.

But this is not the first time we’ve seen Uber’s financials. Over the last couple of years, Uber has willingly disclosed many of these numbers. Its last report as a private company came in February when Uber disclosed $3 billion in Q4 2018 revenue, with rising operating losses.

From ridesharing specifically, Uber’s revenues increased from $3.5 billion in 2016 to $9.2 billion in 2018, with gross bookings hitting $41.5 billion last year from ridesharing products.

Competitor Lyft filed its S-1 documents in March, showing nearly $1 billion in 2018 losses and revenues of $2.1 billion. It reported $8.1 billion in booking, covering 30.7 million riders and 1.9 million drivers. About a week later, Lyft set a range of $62 to $68 for its IPO, seeking to raise up to $2.1 billion. Since its debut on the Nasdaq, Lyft’s stock has suffered after skyrocketing nearly 10% on day one. Lyft is currently trading about 20% below its IPO.


Source: The Tech Crunch

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Lyft prices IPO at top of range

Posted by on Mar 28, 2019 in Fundings & Exits, initial public offering, IPO, Lyft, Startups, Transportation, Venture Capital | 0 comments

Lyft raised more than $2 billion Thursday afternoon after pricing its shares at $72 apiece, the top of the expected range of $70 to $72 per share. This gives Lyft a fully diluted market value of $24 billion.

The company will debut on the Nasdaq stock exchange Friday morning, trading under the ticker symbol “LYFT.”

The initial public offering is the first-ever for a ride-hailing business and represents a landmark liquidity event for private market investors, which had invested billions of dollars in the San Francisco-based company. In total, Lyft had raised $5.1 billion in debt and equity funding, reaching a valuation of $15.1 billion last year.

Lyft’s blockbuster IPO is unique for a number of reasons, in addition to being amongst transportation-as-a-service companies to transition from private to public. Lyft has the largest net losses of any pre-IPO business, posting losses of $911 million on revenues of $2.2 billion in 2018. However, the company is also raking in the largest revenues, behind only Google and Facebook, for a pre-IPO company. The latter has made it popular on Wall Street, garnering buy ratings from analysts prior to pricing.

Uber is the next tech unicorn, or company valued north of $1 billion, expected out of the IPO gate. It will trade on the New York Stock Exchange in what is one of the most anticipated IPOs in history. The company, which reported $3 billion in Q4 2018 revenues with net losses of $865 million, is reportedly planning to unveil its IPO prospectus next month.

Next in the pipeline is Pinterest, which dropped its S-1 last week and revealed a path to profitability that is sure to garner support from Wall Street investors. The visual search engine will trade on the NYSE under the symbol “PINS.” It posted revenue of $755.9 million last year, up from $472.8 million in 2017. The company’s net loss, meanwhile, shrank to $62.9 million last year from $130 million in 2017.

Other notable companies planning 2019 stock offerings include Slack, Zoom — a rare, profitable pre-IPO unicorn — and, potentially, Airbnb.

Updating.


Source: The Tech Crunch

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This is how much money Pinterest execs made last year

Posted by on Mar 22, 2019 in Ben Silbermann, Finance, IPO, Pinterest, TC | 0 comments

Silicon Valley is known for its massive wealth. When these companies file to go public, we all finally get to know how much money these executives take home each year, and the millions they’ll take home after the IPO.

In Pinterest’s S-1, which it filed earlier today, we see that co-founder and CEO Ben Silbermann earned a salary of $197,100. But that’s actually nothing compared to Pinterest CFO Todd Morgenfeld, who earned a base salary of $360,500 with stock awards worth $22,028,696.

It’s still unclear just how much money the execs will make once Pinterest goes public. That’s because Pinterest did not break down stock ownership.

Meanwhile, fellow IPO-bound startup Lyft paid CEO Logan Green a salary of $401,529 and COO Jon McNeill $419,231 last year. At the high end, Green’s stake is worth nearly $523 million, while co-founder John Zimmer’s stake is worth north of $346 million.

Check out our full coverage of Pinterest’s S-1 below.


Source: The Tech Crunch

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Pinterest drops its IPO filing

Posted by on Mar 22, 2019 in Fundings & Exits, IPO, Pinterest, TC, Venture Capital | 0 comments

Pinterest, the nearly decade-old visual search engine, has unveiled its S-1 as it prepares for an initial public offering expected in April.

Valued at $12.3 billion in 2017, Pinterest took its first official step toward a 2019 IPO two months ago, hiring Goldman Sachs and JPMorgan Chase as lead underwriters for its NYSE offering. Now it’s giving us a closer look at its financials.

The San Francisco-based company, which will trade under the ticker symbol “PINS,” posted revenue of $755.9 million in the year ending December 31, 2018, up from $472.8 million in 2017. It has roughly doubled its monthly active user count since early 2016, hitting 265 million late last year. The company’s net loss, meanwhile, shrank to $62.9 million last year from $130 million in 2017.

In total, Pinterest has posted $1.525 billion in revenue since 2016.

Pinterest has similarly raised around $1.5 billion from VCs, listing both early and late-stage investors on its cap table. The company’s key stakeholders include Bessemer Venture Partners, FirstMark Capital, Andreessen Horowitz, Fidelity and Valiant Capital Partners, though the filing doesn’t state the percent ownership of each of these entities.

Pinterest counts more than 250 million monthly active users, bringing in some $700 million in ad revenue in 2018, per reports, a 50 percent increase year-over-year. The business employs 1,600 people across 13 cities, including Chicago, London, Paris, São Paulo, Berlin and Tokyo. Per the filing, Pinterest has signed a lease for a brand new San Francisco headquarters, which will be constructed near its current HQ.

The company’s global average revenue per user (ARPU) in the year ended December 31, 2018 was $3.14, up 25 percent YoY. Its U.S. ARPU, meanwhile, sat at $9.04, a 47 percent increase from the prior year.

Pinterest emerged in 2010 as a buzzy social media startup and mobile app meant for sharing inspirational images and quotes. Under the leadership of co-founder and chief executive officer Ben Silbermann, it has expanded over the years as it has attempted to monetize the platform, which relies on ad revenue to stay afloat. Last fall, in a bid to turn more of its users into shoppers (and compete with Instagram), the company rebuilt the infrastructure behind its product pins. The update brought to the app up-to-date pricing and stock information on all product pins, links directly to retailers, a new “Products like this” category under each fashion and home decor pin and other user-friendly tweaks.

Pinterest’s IPO paperwork emerged just hours after another tech unicorn, Zoom, filed to go public. Several billion-dollar tech companies have made the choice to IPO in 2019, even after a weeks-long government shutdown caused a significant delay in offerings. Pinterest follows Lyft, which unveiled its S-1 and nearly $1 billion in 2018 losses just three weeks ago. Uber and Slack are both expected to make their IPO paperwork available to the public soon. 

Pinterest may be looking to benefit off the 2019 IPO hype spearheaded by Uber and Lyft, though The Information has previously reported Pinterest’s offering could suffer because it’s a social media business, which means it’s often compared to the likes of Facebook and Twitter, a pair of companies that have repeatedly raised concerns about user privacy.

We’ll have to wait a few more weeks to get a better understanding of Wall Street’s demand for Pinterest. If it’s anything like Lyft’s IPO, which is already over-subscribed, the company will fare just fine.

This story is updating.


Source: The Tech Crunch

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Lyft sets $62-68 price range for its IPO to raise $2B, will trade as LYFT on Nasdaq

Posted by on Mar 18, 2019 in Finance, IPO, Lyft, NASDAQ, ride-sharing, TC, Transportation | 0 comments

Ride-sharing startup Lyft this morning announced that it is kicking off the roadshow for its IPO — setting the clock ticking for its IPO likely in around two weeks. Around that, it also filled in some more details. The stock will trade as “LYFT” on Nasdaq and the IPO range is currently set for between $62 and $68 per share to raise $2 billion from 30,770,000 shares of Class A common stock.

Lyft also said in its updated S-1 that at the high end of the range, the maximum offering aggregate price — the maximum that it would raise at that range — will be $2,406,214,000 when considering the full range of Class A stock that will be registered, 35,385,500 shares.

In addition to the 30,770,000 shares of Class A common stock, the company said it has an additional 4,615,500 shares in options for the underwriters, adding up to the 35 million share figure. 

J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC, Jefferies LLC, UBS Securities LLC, Stifel, Nicolaus & Company, Incorporated, RBC Capital Markets, LLC and KeyBanc Capital Markets Inc. are book-running managers for the offering, the company added.

The news kicks off the timer on Lyft’s public listing at a time when all eyes are on how ride-sharing companies will progress to the next stage of their growth, with Uber expected to file and also go public this year. Lyft’s revenues are growing fast — Lyft took $8.1 billion in bookings and made $2.1 billion in revenues in 2018, covering 30.7 million riders and 1.9 million drivers — but the company remains unprofitable. The company posted a net loss of $911.3 million in 2018, a figure that has grown in line with revenues, but notably shrunk proportionately. In 2016, revenues were $343.3 million while net loss was $682 million.

This public listing provides a road map for how Lyft can continue to fund its operations and growth while providing liquidity for investors as it continues working on getting into the black.

More to come.


Source: The Tech Crunch

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African e-commerce startup Jumia files for IPO on NYSE

Posted by on Mar 12, 2019 in africa, eCommerce, Egypt, Fundings & Exits, Ghana, Goldman Sachs, IPO, jumia, kenya, Lagos, morgan stanley, morocco, Naspers, Nigeria, online retail, Rocket Internet, Smartphones, Startup company, Startups, TC, tech startup, travel bookings, U.S. Securities and Exchange Commission, unicorn | 0 comments

Pan-African e-commerce company Jumia filed for an IPO on the New York Stock Exchange today, per SEC documents and confirmation from CEO Sacha Poignonnec to TechCrunch.

The valuation, share price and timeline for public stock sales will be determined over the coming weeks for the Nigeria-headquartered company.

With a smooth filing process, Jumia will become the first African tech startup to list on a major global exchange.

Poignonnec would not pinpoint a date for the actual IPO, but noted the minimum SEC timeline for beginning sales activities (such as road shows) is 15 days after submitting first documents. Lead adviser on the listing is Morgan Stanley .

There have been numerous press reports on an anticipated Jumia IPO, but none of them confirmed by Jumia execs or an actual SEC, S-1 filing until today.

Jumia’s move to go public comes as several notable consumer digital sales startups have faltered in Nigeria — Africa’s most populous nation, largest economy and unofficial bellwether for e-commerce startup development on the continent. Konga.com, an early Jumia competitor in the race to wire African online retail, was sold in a distressed acquisition in 2018.

With the imminent IPO capital, Jumia will double down on its current strategy and regional focus.

“You’ll see in the prospectus that last year Jumia had 4 million consumers in countries that cover the vast majority of Africa. We’re really focused on growing our existing business, leadership position, number of sellers and consumer adoption in those markets,” Poignonnec said.

The pending IPO creates another milestone for Jumia. The venture became the first African startup unicorn in 2016, achieving a $1 billion valuation after a $326 funding round that included Goldman Sachs, AXA and MTN.

Founded in Lagos in 2012 with Rocket Internet backing, Jumia now operates multiple online verticals in 14 African countries, spanning Ghana, Kenya, Ivory Coast, Morocco and Egypt. Goods and services lines include Jumia Food (an online takeout service), Jumia Flights (for travel bookings) and Jumia Deals (for classifieds). Jumia processed more than 13 million packages in 2018, according to company data.

Starting in Nigeria, the company created many of the components for its digital sales operations. This includes its JumiaPay payment platform and a delivery service of trucks and motorbikes that have become ubiquitous with the Lagos landscape.

Jumia has also opened itself up to traders and SMEs by allowing local merchants to harness Jumia to sell online. “There are over 81,000 active sellers on our platform. There’s a dedicated sellers page where they can sign-up and have access to our payment and delivery network, data, and analytic services,” Jumia Nigeria CEO Juliet Anammah told TechCrunch.

The most popular goods on Jumia’s shopping mall site include smartphones (priced in the $80 to $100 range), washing machines, fashion items, women’s hair care products and 32-inch TVs, according to Anammah.

E-commerce ventures, particularly in Nigeria, have captured the attention of VC investors looking to tap into Africa’s growing consumer markets. McKinsey & Company projects consumer spending on the continent to reach $2.1 trillion by 2025, with African e-commerce accounting for up to 10 percent of retail sales.

Jumia has not yet turned a profit, but a snapshot of the company’s performance from shareholder Rocket Internet’s latest annual report shows an improving revenue profile. The company generated €93.8 million in revenues in 2017, up 11 percent from 2016, though its losses widened (with a negative EBITDA of €120 million). Rocket Internet is set to release full 2018 results (with updated Jumia figures) April 4, 2019.

Jumia’s move to list on the NYSE comes during an up and down period for B2C digital commerce in Nigeria. The distressed acquisition of Konga.com, backed by roughly $100 million in VC, created losses for investors, such as South African media, internet and investment company Naspers .

In late 2018, Nigerian online sales platform DealDey shut down. And TechCrunch reported this week that consumer-focused venture Gloo.ng has dropped B2C e-commerce altogether to pivot to e-procurement. The CEO cited better unit economics from B2B sales.

As demonstrated in other global startup markets, consumer-focused online retail can be a game of capital attrition to outpace competitors and reach critical mass before turning a profit. With its unicorn status and pending windfall from an NYSE listing, Jumia could be better positioned than any venture to win on e-commerce at scale in Africa.


Source: The Tech Crunch

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Pinterest files confidentially to go public

Posted by on Feb 21, 2019 in Andreessen Horowitz, Ben Silbermann, Bessemer Venture Partners, Fundings & Exits, Goldman Sachs, IPO, Lyft, Pinterest, Startups, Uber, Venture Capital | 0 comments

Visual search engine Pinterest has joined a long list of high-flying technology companies planning to go public in 2019. The business has confidentially submitted paperwork to the Securities and Exchange Commission for an initial public offering slated for later this year, according to a report from The Wall Street Journal.

Pinterest declined to comment.

Founded in 2008 by Ben Silbermann, earlier reports indicated the company was planning to debut on the stock market in April. In late January, Pinterest took its first official step toward a 2019 IPO, hiring Goldman Sachs and JPMorgan Chase as lead underwriters for its offering.

The company garnered a $12.3 billion valuation in 2017 with a $150 million financing.

Touting 250 million monthly active users, Pinterest has raised nearly $1.5 billion in venture capital funding from key stakeholders Bessemer Venture Partners, Andreessen Horowitz, FirstMark Capital, Fidelity and SV Angel. The business brought in some $700 million in ad revenue in 2018, per reports, a 50 percent increase year-over-year.

Pinterest employs 1,600 people across 13 cities, including Chicago, London, Paris, São Paulo, Berlin and Tokyo. The company says half its users live outside the U.S.

Pinterest will likely follow Lyft, Uber and Slack to the public markets, which have all filed confidential paperwork for IPOs or, in Slack’s case, a reported direct listing, expected in the coming months.


Source: The Tech Crunch

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Food delivery service Postmates confidentially files to go public

Posted by on Feb 7, 2019 in Food, Fundings & Exits, IPO, Postmates, TC, Venture Capital | 0 comments

Shortly after closing a $100 million pre-IPO round, food delivery business Postmates has confidentially filed documents with the Securities and Exchange Commission for an upcoming public offering, Bloomberg first reported and the company confirmed in a blog post.

The company will debut on the stock exchange at a more than $1.85 billion valuation — the valuation it garnered with its $100 million round in January. In total, Postmates has raised $681 million in venture capital funding from investors, including Spark Capital, Founders Fund, Uncork Capital and Slow Ventures.

The eight-year-old company has tapped JPMorgan Chase and Bank of America to lead its upcoming float.

Postmates, which competes with several large players in the food delivery space, including Uber Eats and DoorDash, says it completes 5 million deliveries per month and is reportedly expected to record $400 million in revenue in 2018 on food sales of $1.2 billion.

Currently, it operates in more than 550 cities, recently tacking on another 100 markets to reach an additional 50 million customers.

Postmates is next in a long line of tech unicorns planning to make the leap into the public markets in 2019. Slack most recently filed confidentially to exit, following Lyft and Uber, which similarly submitted private SEC documents at the tail-end of 2018.


Source: The Tech Crunch

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Pinterest puts an IPO on its pinboard, hiring Goldman Sachs and JPMorgan to lead an offering this year

Posted by on Jan 30, 2019 in eCommerce, Goldman Sachs, IPO, Pinterest, Startups, TC | 0 comments

Pinterest, the nearly nine-year-old, San Francisco-based site known for the images and links that its users post about everything from wedding to beauty trends, has hired Goldman Sachs and JPMorgan Chase as lead underwriters for an IPO that it’s planning to stage later this year.

Reuters first reported the news. TechCrunch sources have since confirmed the development. A Pinterest spokesperson declined to “comment on rumors and speculation” when asked this afternoon for more information.

Pinterest has raised roughly $1.5 billion over the years and was valued at $12 billion by its private investors during its last fundraising round in 2017. Notably, its backers include Goldman Sachs Investment Partners, among many other investment firms, both early and later-stage, like Valiant Capital Partners, Wellington Management, Andreessen Horowitz and Bessemer Venture Partners.

The company’s revenue last year was $700 million, more than double what the company generated in revenue in 2017.

It has 250 million monthly active users, compared with the 200 million monthly active users who were on the platform as of mid 2017.

Whether Pinterest has ever been profitable, we couldn’t learn this afternoon. But the company employs 1,600 people across 13 cities globally, including Chicago, London, Paris, São Paulo, Berlin, and Tokyo, and half its users now live outside the U.S., with the international market its fastest-growing segment.

Perhaps unsurprisingly, more than 80 percent of people access the service via its mobile app.

Assessing how Pinterest’s shares might be received by public market shareholders has become a favorite parlor game for Silicon Valley denizens. In a recent report, the outlet The Information posited that Pinterest’s offering could suffer because it’s a social media company that’s frequently lumped together with companies like Facebook and Twitter that have repeatedly raised concerns about users’ privacy and have faced a nearly year-long backlash as a result.

Yet Pinterest is far afield from what most users think of as social media and more akin to a visual search and discovery platform, with people looking for ideas and inspiration rather than to reach other people. So thinks venture capitalist Venky Ganesan of Menlo Ventures, who noted on a recent TechCrunch podcast that “there are no Russian trolls” on Pinterest. More, he’d said, “I haven’t seen Pinterest sell [users’] data. They’re using data to [figure out] advertising on Pinterest; they aren’t brokering [that information] to others.”

Another potential concern for Pinterest is its reliance on advertising, which is often the easiest expense for companies to slash when an economy begins to cool, as may be happening here in the U.S. Ads make up 100 percent of the company’s revenue.

Here, too, however, Pinterest could prove more durable than some of its competitors. While brand-image driven advertising often gets cut when budgets tighten, direct response advertising often does even better in down markets, as companies seek out clearer returns on their investment. And much of Pinterest’s revenue is driven by direct-response type advertising. Users see, they click, and they buy. As Ganesan offered during that same trip to TC’s podcast dungeon, “I’ve got three daughters at home, and they spend a lot of time on Pinterest, and they buy stuff.” (Ganesan isn’t an investor in the company; neither is the broader Menlo Ventures team.)

Pinterest could reportedly seek to raise up to $1.5 billion in an offering, according to past media reports. Whether it targets more or less, we’re likely to learn soon, but an IPO has been expected for some time, in part because the company is getting up there in years as startups go, in part because of its continued growth, and in part because of some new hires that seemed to suggest the company has been gearing up to become publicly traded.

In November, for example, Pinterest brought aboard its first-ever chief marketing officer in Andréa Mallard, who joined the company from Athleta, Gap’s activewear brand. She now oversees the company’s global marketing and creative teams.

Roughly a year ago, Pinterest also recruited its first COO, hiring  Francoise Brougher, who was previously a  business lead at Square and a VP of SMB global sales and operations at Google before that.

In fact, unlike many of today’s buzziest companies, Pinterest seems to have retained almost all of its top executives in recent years with one notable exception. In late 2017, it parted ways with its then president, Tim Kendall, who’d been with Pinterest for more than five years at the time. Kendall, who’d also worked previously at Facebook, left to start his own health wellness company.


Source: The Tech Crunch

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TechCrunch Conversations: Direct listings

Posted by on Jan 19, 2019 in Airbnb, Banking, Barbara Gray, Barry McCarthy, Brady Capital Research, Brookline Capital Markets, chegg, Community, Cooley, Cooley LLP, Eric Jensen, Finance, funding, Government, Graham Powis, initial public offering, IPO, Jay R. Ritter, Jay Ritter, Josh Kuzon, Netflix, Pandora, Policy, Private Equity, Reciprocal Ventures, secondaries, slack, Spotify, Spotify IPO, Startup Initial Public Offering, TC, Technology Crossover Ventures, university of florida, Venture Capital | 1 comment

Last April, Spotify surprised Wall Street bankers by choosing to go public through a direct listing process rather than through a traditional IPO. Instead of issuing new shares, the company simply sold existing shares held by insiders, employees and investors directly to the market – bypassing the roadshow process and avoiding at least some of Wall Street’s fees. That pattens is set to continue in 2019 as Silicon Valley darlings Slack and Airbnb take the direct listing approach.

Have we reached a new normal where tech companies choose to test their own fate and disrupt the traditional capital markets process?  This week, we asked a panel of six experts on IPOs and direct listings: “What are the implications of direct listing tech IPOs for financial services, regulation, venture capital, and capital markets activity?” 

This week’s participants include: IPO researcher Jay R. Ritter (University of Florida’s Warrington College of Business), Spotify’s CFO Barry McCarthy, fintech venture capitalist Josh Kuzon (Reciprocal Ventures), IPO attorney Eric Jensen (Cooley LLP), research analyst Barbara Gray, CFA (Brady Capital Research), and capital markets advisor Graham A. Powis (Brookline Capital Markets).

TechCrunch is experimenting with new content forms. Consider this a recurring venue for debate, where leading experts – with a diverse range of vantage points and opinions – provide us with thoughts on some of the biggest issues currently in tech, startups and venture. If you have any feedback, please reach out: Arman.Tabatabai@techcrunch.com.


Thoughts & Responses:


Jay R. Ritter

Jay Ritter is the Cordell Eminent Scholar at the University of Florida’s Warrington College of Business. He is the world’s most-cited academic expert on IPOs. His analysis of the Google IPO is available here.

In April last year, Spotify stock started to trade without a formal IPO, in what is known as a direct listing. The direct listing provided liquidity for shareholders, but unlike most traditional IPOs, did not raise any money for the company. Slack has announced that they will also conduct a direct listing, and it is rumored that some of the other prominent unicorns are considering doing the same.

Although no equity capital is raised by the company in a direct listing, after trading is established the company could do a follow-on offering to raise money. The big advantage of a direct listing is that it reduces the two big costs of an IPO—the direct cost of the fees paid to investment bankers, which are typically 7% of the proceeds for IPOs raising less than $150 million, and the indirect cost of selling shares at an offer price less than what the stocks subsequently trades at, which adds on another 18%, on average. For a unicorn in which the company and existing shareholders sell $1 billion in a traditional IPO using bookbuilding, the strategy of a direct listing and subsequent follow-on offering could net the company and selling shareholders an extra $200 million.

Direct listings are not the only way to reduce the direct and indirect costs of going public. Starting twenty years ago, when Ravenswood Winery went public in 1999, some companies have gone public using an auction rather than bookbuilding. Prominent companies that have used an auction include Google, Morningstar, and Interactive Brokers Group. Auctions, however, have not taken off, in spite of lower fees and less underpricing. The last few years no U.S. IPO has used one.

Traditional investment banks view direct listings and auction IPOs as a threat. Not only are the fees that they receive lower, but the investment bankers can no longer promise underpriced shares to their hedge fund clients. Issuing firms and their shareholders are the beneficiaries when direct listings are used.

If auctions and direct listings are so great, why haven’t more issuers used them? One important reason is that investment banks typically bundle analyst coverage with other business. If a small company hires a top investment bank such as Credit Suisse to take them public with a traditional IPO, Credit Suisse is almost certainly going to have its analyst that covers the industry follow the stock, at least for a while. Many companies have discovered, however, that if the company doesn’t live up to expectations, the major investment banks are only too happy to drop coverage a few years later. In contrast, an analyst at a second-tier investment bank, such as William Blair, Raymond James, Jefferies, Stephens, or Stifel, is much more likely to continue to follow the company for many years if the investment bank had been hired for the IPO. In my opinion, the pursuit of coverage from analysts at the top investment banks has discouraged many companies from bucking the system. The prominent unicorns, however, will get analyst coverage no matter what method they use or which investment banks they hire.


Barry McCarthy

Barry McCarthy is the Chief Financial Officer of Spotify. Prior to joining Spotify, Mr. McCarthy was a private investor and served as a board member for several major public and private companies, including Spotify, Pandora and Chegg. McCarthy also serves as an Executive Adviser to Technology Crossover Ventures and previously served as the Chief Financial Officer and Principal Accounting Officer of Netflix.

If we take a leap of faith and imagine that direct listings become an established alternative to the traditional IPO process, then we can expect:

  1. Financing costs to come down – The overall “cost” of the traditional IPO process will come down, in order to compete with the lower cost alternative (lower underwriting fees and no IPO discount) of a direct listing.
  2. The regulatory framework to remain unchanged – No change was / is required in federal securities laws, which already enable the direct listing process. With the SEC’s guidance and regulatory oversight, Spotify repurposed an existing process for direct listings – we didn’t invent a new one.

  3. A level playing field for exits – Spotify listed without the traditional 180 day lock-up. In order to compete with direct listings, traditional IPOs may eliminate the lock-up (and the short selling hedge funds do into the lock-up expiry).

  4. Financing frequency; right church, wrong pew – Regardless of what people tell you, an IPO is just another financing event. But you don’t need to complete a traditional IPO anymore if you want to sell equity. Conventional wisdom says you do, but I think conventional wisdom is evolving with the realities of the marketplace. Here’s how we’d do it at Spotify if we needed to raise additional equity capital. We’d execute a secondary or follow-on transaction, pay a 1% transaction fee and price our shares at about a 4% discount to the closing price on the day we priced our secondary offering. This is much less expensive “financing” than a traditional IPO with underwriter fees ranging from 3-7% (larger deals mean smaller fees) and the underwriter’s discount of ~36% to the full conviction price for the offering. You simply uncouple the going public event from the money raising event.


Josh Kuzon

Josh Kuzon is a Partner at Reciprocal Ventures, an early stage venture capital firm based in NYC focused on FinTech and blockchain. An expert in payments and banking systems, Josh is focused on backing the next generation of FinTech companies across payments, credit, financial infrastructure, and financial management software.

I think the implications of direct listing tech IPOs are positive for venture capitalists, as it creates a channel for efficient exits. However, the threat of low liquidity from a direct listing is significant and may ultimately outweigh the benefits for the listing company. 

Direct listing tech IPOs offers a compelling model for company employees and existing investors in pursuit of a liquidity event. The model features a non-dilutive, no lock-up period, and underwriting fee-less transaction, which is a short-term benefit of the strategy. Additionally, as a publicly traded company, there are longer-term benefits in being able to access public markets for financing, using company stock to pay for acquisitions, and potentially broaden global awareness of an organization. However, these benefits come with tradeoffs that should not be overlooked. 

One concern is the circular problem of liquidity. Without a defined supply of stock, it can be difficult to generate meaningful buyside demand. A floating price and indeterminate quantity will dampen institutional interest, no matter how great the listing company may be. Institutions require size and certainty; not only do they desire to build large positions, but they need to know they can exit them if needed. Without consistent institutional bids, sellers are less motivated to unwind their stakes, for fear of volatility and soft prices.

I believe institutional investors and their brokers are crucial ingredients for a properly functioning public equities market structure. They help make markets more liquid and efficient and serve as a check on companies to drive better business outcomes for their shareholders. A lack of institutional investors could be a very expensive long-term tradeoff for a short-term gain.

For companies that have significant brand awareness, don’t need to raise additional capital, or already have a diverse institutional investor base, the direct listing model may work out well for them. Few companies, however, fit this profile. Many more will likely have to work a lot harder to persuade the capital markets to participate in a direct listing and even if successful, may ultimately come back to bite them as they evolve and require additional capital markets cooperation.


Eric Jensen

Eric Jensen is a partner at Cooley LLP. He advises leading technology entrepreneurs, venture funds and investment banks in formation, financing, capital market and M&A transactions, and in in the past seven years was involved in over 55 offerings, raising over $21 billion, for companies such as Appian, Atlassian, Alteryx, Avalara, DocuSign, FireEye, Forty Seven, LinkedIn, MongoDB, NVIDIA, Redfin, SendGrid, ServiceNow, Tenable, Zendesk, Zulilly and Zynga.

It is challenging to draw market lessons from a single completed “direct listing.” The degree of interest I am seeing, often without folks knowing what it means, shows that the IPO model has issues. So first I describe to a client what it means – an IPO without the “I” and the “O”, meaning you are not selling any stock and therefore you don’t have a set initial stock price. These factors mean that a direct listing is relevant only for a small subset of private companies – those that:

  1. Sold stock to a number of institutional buyers that are likely to hold or increase their interest once trading begins;
  2. Are large enough (and didn’t restrict transfers) such that an active trading market developed as a private company, to be used as a proxy for the public trading price;
  3. Don’t need to raise primary capital, and
  4. Want to make their mark by doing something different, at the expense of placing IPO stock in the hands of new investors they have selected.

There is no evidence to indicate that it accelerates public market access, any company that can do a direct listing could do an IPO. The SEC doesn’t go away, and compared to the highly tuned IPO process, SEC scrutiny is actually higher. As least based on Spotify, it doesn’t put investment bankers out of a job, nor does it dramatically reduce total transactions costs. Spotify had no lock-up agreement, so the VCs I know love this feature, but it is not inherent in a direct listing, and IPOs don’t require lock-ups.

In my book, too soon to tell if it is the reverse Dutch Auction of its day.


Barbara Gray

Barbara Gray, CFA is a former top-ranked sell-side Equity Analyst and the Founder of Brady Capital Research Inc., a leading-edge investment research firm focused on structural disruption. She is also the author of the books Secrets of the Amazon 2.0, Secrets of the Amazon and Ubernomics.

Although Spotify successfully broke free of its reins last April and entered the public arena unescorted, I expect most unicorns will still choose to pay the fat underwriting fees to be paraded around by investment bankers. 

Realistically, the direct listing route is most suitable for companies meeting the following three criteria: 1) consumer-facing with strong brand equity; 2) easy-to-understand business model; and 3) no need to raise capital. Even if a company meets this criteria, the “escorted” IPO route could provide a positive return on investment as the IPO roadshow is designed to provide a valuation uptick through building awareness and preference versus competitive offerings by enabling a company to: a) reach and engage a larger investment pool; b) optimally position its story; and c) showcase its skilled management team.

Although the concept of democratizing capital markets by providing equal access to all investors is appealing, if a large institution isn’t able to get an IPO allocation, they may be less willing to build up a meaningful position in the aftermarket. The direct listings option also introduces a higher level of pricing risk and volatility as the opening price and vulnerable early trading days of the stock are left to the whims of the market. Unlike with an IPO, with benefits of stabilizing bids and 90 to 180 days lock-up agreements prohibiting existing investors from selling their shares, a flood of sellers could hit the market.


Graham Powis

Graham A. Powis is Senior Capital Markets Advisor at Brookline Capital Markets, a division of CIM Securities, LLC. Brookline is a boutique investment bank that provides a comprehensive suite of capital markets and advisory services to the healthcare industry. Mr. Powis previously held senior investment banking positions at BTIG, Lazard and Cowen.

While Spotify’s direct listing in 2018 and recent reports that Slack is considering a direct listing in 2019 have heightened curiosity around this approach to “going public,” we expect that most issuers in the near-to medium-term will continue to pursue a traditional IPO path. Potential benefits of a direct listing include the avoidance of further dilution to existing holders and underwriter fees. However, large, high-profile and well-financed corporations, most often in the technology and consumer sectors, are the companies typically best-suited to pursue these direct listings. By contrast, smaller companies seeking to raise capital alongside an exchange listing, and with an eye on overcoming challenges in attracting interest from the investing public, will continue to follow a well-established IPO process.

A case in point is the healthcare segment of the US IPO market, which has accounted for one-third of all US IPO activity over the last five years. The healthcare vertical tilts toward small unprofitable companies with significant capital needs and, as a result, direct listings aren’t likely to become a popular choice in that industry. Since 2014, unprofitable companies have accounted for more than 90% of all healthcare IPOs completed. Furthermore, the biotechnology subsector has been by far the most active corner of the healthcare IPO market, and biotechnology companies are voracious consumers of capital. Finally, healthcare IPOs tend to be relatively small: since 2014, healthcare IPO issuers have raised, on average, only 47% of the amount raised by non-healthcare issuers, and more than half have already returned to the market at least once for additional capital.


Source: The Tech Crunch

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