World News – US – Why Silicon Valley is moving away from Wall Street


Palantir and Asana, which go public today, are just two of tech companies choosing to float via unconventional methods

It’s not often that 3,500 people ring the New York Stock Exchange (NYSE) opening bell at the same time

It seems physically impossible But that’s pretty much how video game tech company Unity went public earlier this month: with thousands of workers simultaneously hitting their space bars to trigger the bang

It wasn’t the most unusual thing about Unity’s public debut. Rather than allowing investment bankers to set the bid price for its shares and distribute guaranteed blocks to investors, the company created an online auction system to perform both functions

And instead of “blocking” the shares of his employees for six months, he gave them carte blanche to sell whenever they wanted

Unity’s method may be unusual, but its choice to cover up tradition isn’t Wednesday, data mining company Palantir and workplace collaboration company Asana will all be launching two on the NYSE via direct listing, the same procedure used by Spotify and Slack

More are undoubtedly on the way The United States Securities and Exchange Commission (SEC) has changed its rules to allow companies to raise new money in this way, rather than just selling existing stocks

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Meanwhile, many tech companies have chosen to go public through Special Purpose Acquisition Companies, or SPACs, an obscure method of floating a shell company and using the proceeds to redeem themselves. p>

Such was the choice of fantasy sports company DraftKings, fintech companies Paya and Open Lending, and a group of green automakers such as Nikola and CanooSince January, there have been 75 such transactions compared to only 7 in 2010 No wonder KPMG has called 2020 « the year of PSPC »

All are signs of Silicon Valley’s growing willingness, after years of tension and suspicion, to move away from Wall Street

« Look at the incredible divergence of tech companies from other industries in the pandemic, ask yourself how the hell the public is supposed to participate in this growth? » says Eric Ries, a tech entrepreneur who offers perhaps the most radical alternative to mainstream markets in the form of a New Long Term Exchange (LTSE)

« In the tech industry we used to finance growth with ordinary people’s retirement savings And when we broke that connection I think the long term consequences are pretty dangerous »

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The LTSE, which started trading earlier this month and is backed by a powerful Valley venture capitalist such as Andreessen Horowitz and Founders Fund, is designed to address alleged short-termism issues, of rampant speculation and destruction of innovation in favor of Wall Street quarterly results research

According to Ries, the companies in it – as Airbnb would envision – will bond to the mast of long-term commitments and reap the rewards of trusted investors, supportive public relations and protection from the fear that can come from it. panic selling and the chance market is faltering

Of course, many in the Valley have a more pecuniary bone to choose Bill Gurley, the six-foot-nine Texas venture capitalist who helped fund Uber, GrubHub, Stitch Fix, and Zillow, has been cruising since 2018 to convince them founders to withdraw from the classic initial public offering (IPO)

« The traditional way of going public is systematically broken and robs Silicon Valley founders, employees and investors of billions of dollars each year, » he wrote last month

Central to his views is the notion of the “pop” public float, in which a company’s share price jumps immediately after its debut like champagne froth coming out of a bottle Traditionally, executives welcome this pop for the positive buzz it provides Gurley and many others, however, consider it « leaves money on the table »

« Everyone must realize that this unnecessary transfer of wealth is coming straight out of the pockets of employees, founders and investors. What ‘pop’ you hear is money is coming out of your pocket and in hands of the best brokerage clients of the bank, ”he wrote in June

Indeed, pricing has long been shrouded in an arcane ritual Critics have claimed that the bankers who run the IPO have a shared incentive, serving both the company and their clients at the same time.

Gurley cites a startling study by Jay Ritter of the University of Florida, which claims that the average public float in 2020 lost 31% to pop – a total of $ 7 billion (£ 6 billion pounds sterling), much of which would otherwise have been allocated to employees holding shares

This is exactly why his company decided to avoid any blocking period, says Unity Marketing Director Clive Downie “We value our employee base above and beyond anything else,” he says. “We wanted this process to be employee-centric: we’re there together”

He is wary of Unity’s decision to thumb his nose at bankers, saying it was « not a problem » with the traditional way « We are a very data-driven company and we wanted a process that allows us to review data in a way that we do on a daily basis with all of our other business decisions »

He says the data also helped convince executives not to worry about a massive employee sale: “We looked at this and found that there was no need to worry « 

In case, if Unity tried to avoid a pop, it got the wrong sum The shares closed at 31 bp above their initial price on the first day of trading (The mass ringing of the bell may have been an illusion; Downie declined to say what would have happened if no one had hit their keyboard)

Not everyone has given up on the IPO, with a notable example this month being Snowflake The Warren-Buffett-backed cloud services start-up has had less noise than a thunderclap , with its shares nearly doubling from their original price and its market cap hitting a record high of $ 70 billion

Wasn’t that « leaving money on the table »? Maybe, says co-founder and chief technology officer Benoit Dageville – but he doesn’t care

« I’m at peace with that », he said « We have a lot of money to do whatever we want Yes you can always have more; you could have done it differently for me, money n ‘is really almost not important, except that we must have the means to achieve our ambition This is what is close to my heart « 

He agreed that public ownership could hinder innovation for some companies; but not for his « If Snowflake stops innovating, we are dead We will die very quickly, and all these firms that have invested are going to lose a lot of money we selected our investors because they understood that », says- he

Bizarre beginnings could hurt corporate governance, too The US Council of Institutional Investors, always sensitive to any limitations on shareholder rights, told the SEC that opening direct listings would allow companies access new capital while avoiding owner protections A Financial Times analysis also found that the majority of PSPCs now appear to be below their first asking price.

This is of particular concern with Palantir, whose SEC documents have been accused of hiding « red flags » Billy Duberstein, portfolio manager at Stone Oak Capital, claims he took big losses while paying huge salaries to top executives, lending them money at great rates and paying for affiliate services to its executives and board members

Additionally, Andreessen Horowitz has argued that Gurley’s account is « almost completely false, » claiming that the high day one stock prices are a consequence of the unique circumstances of an IPO, in which there are huge competition for a relatively small slice of stocks

For Ries, however, the stakes are greater than the added benefits for founders and employees. He sees the hand of market short-termism in a panoply of current issues, from massive coronavirus layoffs to the failed response of United States to pandemic to police brutality

He goes so far as to say that if a long-term swap had existed ten or 20 years ago, we might already have a vaccine against Covid-19 Many companies, he argues, have started looking for one. for SARS years ago, but abandoned it once the virus was contained, and he has heard countless similar tales from desperate researchers about promising but difficult projects that were killed to save money. ‘silver

« Every researcher has ten of these stories », he says « You wanna cry after a day like this »

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Palantir Technologies, Alex Karp, Peter Thiel, IPO, Stock, Stephen Cohen

World News – United States – Why Silicon Valley Is Moving Away From Wall Street



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