5 ms·

One of the big roles an Investment Bank plays in organizing an IPO is building brand awareness and product understanding with potential investors. Places like S

One of the big roles an Investment Bank plays in organizing an IPO is building brand awareness and product understanding with potential investors. Places like Slack and Spotify likely feel that 1) their product has sufficient market awareness and 2) is fairly intuitive to understand. So, why spend the $$$ on an expensive middle-man if you don't need it? (Provided that you can hire a competent legal team to organize the process for you!)

kevinyun 8y ago
Is point #1 necessarily true? (Asking upwards, not down) I would imagine that most companies that are gearing up for IPO feel well-known to the tech community, but are mostly unknown to the outside world. For example, with Slack, if I asked my non-tech friends, most would would have no idea what that is.
- keithwhor 8y ago
  You should ask your non-tech friends before asserting their opinions. I would have thought the same, but I spent the past winter holidays speaking to a number of interested friends / family members about our company, which is fairly technical. The first question I always asked as a lead-in was, “have you ever heard of or used Slack?” The answer was yes across the board. They’re the fastest growing SaaS company ever. Don’t underestimate the power of exponential growth over the period of even a few months.
- throwawaymath 8y ago
  Most of my "non-tech" friends are familiar with Slack as a company, even if they haven't professionally used it themselves.
- mavelikara 8y ago
  Anecdata: I have seen advertisements for Slack on magazines like Economist. Also, my HoA community has a Slack workspace.
  - nathancahill 8y ago
    How often do they use @channel, @here and @everyone? ie the bane of my existence?
    - daveFNbuck 8y ago
      You can configure by channel to ignore those in your notifications preferences.
- justadudeama 8y ago
  I am not so sure about this. I think more and more non-tech things are going towards Slack. A lot of non-technical companies use Slack, and it is in constant use as a University student as a improved group chat.
- charlesdm 8y ago
  You can approach institutional investors yourself, vs going with a banker and paying them up to 10% of the offering gains + risk them pricing your shares too low (i.e. 30% first day pops). The amount of money a company potentially loses is massive.
- deleted 8y ago
  [deleted]
- stanfordkid 8y ago
  The key is awareness with large institutional investors which is more about building trust. The banks have a monopoly in terms of trust with sovereign wealth funds or mutual fund managers... since they do multiple deals over a long period of time.. they are incentivized not to screw them on any single deal. Increasingly though these entities are more interested in direct connections with management teams, thus cutting out middle men like Goldman Sachs. This dynamic is what drives entities like Goldman Sachs to invest in late stage rounds so as to build a deep understanding of the business prior to IPO. It’s so great that more companies are going “straight to the money”.
  - JumpCrisscross 8y ago
    > banks have a monopoly in terms of trust with sovereign wealth funds or mutual fund managers Deep well, not monopoly.
tzhenghao 8y ago
Hmm I'd like to agree with you, but I "think" the opposite is true for 1). Trying to pitch a bunch of potential investors on a newer but more risky business model without strong enough financial track record can be an uphill battle. Then again, who thought Amazon might be a good biz model when they went public? :) Might as well just go with direct listing, plus the added benefit of saving on banker fees. Oh, and no need for the executives to do tiring traditional IPO roadshows that require travel to major financial hubs all over the world. Update: By also doing a direct listing, shareholders, pre-IPO employees included, won't have to wait 6 months to sell their shares.
neom 8y ago
Banks also provide medium term price stability for high volume IPOs, these are not high volume IPOs however, so there is an inherent stability.
rrdharan 8y ago
Spotify ended up spending the same amount of money on expensive middle men: https://www.bloomberg.com/opinion/articles/2018-01-16/spotify-will-pay-banks-to-cut-out-the-banks https://www.bloomberg.com/opinion/articles/2018-01-16/spotif... To me it just seems like a form of fancy marketing.
- asdfasgasdgasdg 8y ago
  That's not what the article says. It says they paid some money in fees, and more than the average IPO. It does not say they paid more or the same as a percentage than the average IPO. I can't find any information on how much money they/their shareholders ultimately raised, so it's difficult to contextualize that $30M number. But, for example, if only ten percent of the shares were sold in the IPO, that would amount to $500M in sold shares. The typical IPO nets 5% in fees, which would be $35M. On the other hand, if 20% of the company changed hands in the IPO, that would amount to $70M in expected fees. To me, ten percent seems pretty conservative, so I'd say it's a safe bet Spotify saved money. I expect Slack would not do the direct listing if they didn't also expect to save money on the deal.
rajacombinator 8y ago
The bank cartels will punish them. Startup ceos ought to have known this since Google’s IPO debacle.
- regulation_d 8y ago
  Debacle? An 18% first day bump seems pretty reasonable to me.
  - Ericson2314 8y ago
    You don't want the price to blow up!
    - regulation_d 8y ago
      Sure, you don't want to leave money on the table, but an 18% pop is pretty standard even for normal book building. Seems weird to call Google's Dutch auction a debacle when it had the same result as standard book building.

kevinyun 8y ago

Is point #1 necessarily true? (Asking upwards, not down) I would imagine that most companies that are gearing up for IPO feel well-known to the tech community, but are mostly unknown to the outside world. For example, with Slack, if I asked my non-tech friends, most would would have no idea what that is.

keithwhor 8y ago
You should ask your non-tech friends before asserting their opinions. I would have thought the same, but I spent the past winter holidays speaking to a number of interested friends / family members about our company, which is fairly technical. The first question I always asked as a lead-in was, “have you ever heard of or used Slack?” The answer was yes across the board. They’re the fastest growing SaaS company ever. Don’t underestimate the power of exponential growth over the period of even a few months.
throwawaymath 8y ago
Most of my "non-tech" friends are familiar with Slack as a company, even if they haven't professionally used it themselves.
mavelikara 8y ago
Anecdata: I have seen advertisements for Slack on magazines like Economist. Also, my HoA community has a Slack workspace.
- nathancahill 8y ago
  How often do they use @channel, @here and @everyone? ie the bane of my existence?
  - daveFNbuck 8y ago
    You can configure by channel to ignore those in your notifications preferences.
justadudeama 8y ago
I am not so sure about this. I think more and more non-tech things are going towards Slack. A lot of non-technical companies use Slack, and it is in constant use as a University student as a improved group chat.
charlesdm 8y ago
You can approach institutional investors yourself, vs going with a banker and paying them up to 10% of the offering gains + risk them pricing your shares too low (i.e. 30% first day pops). The amount of money a company potentially loses is massive.
deleted 8y ago
[deleted]
stanfordkid 8y ago
The key is awareness with large institutional investors which is more about building trust. The banks have a monopoly in terms of trust with sovereign wealth funds or mutual fund managers... since they do multiple deals over a long period of time.. they are incentivized not to screw them on any single deal. Increasingly though these entities are more interested in direct connections with management teams, thus cutting out middle men like Goldman Sachs. This dynamic is what drives entities like Goldman Sachs to invest in late stage rounds so as to build a deep understanding of the business prior to IPO. It’s so great that more companies are going “straight to the money”.
- JumpCrisscross 8y ago
  > banks have a monopoly in terms of trust with sovereign wealth funds or mutual fund managers Deep well, not monopoly.

tzhenghao 8y ago

Hmm I'd like to agree with you, but I "think" the opposite is true for 1). Trying to pitch a bunch of potential investors on a newer but more risky business model without strong enough financial track record can be an uphill battle. Then again, who thought Amazon might be a good biz model when they went public? :) Might as well just go with direct listing, plus the added benefit of saving on banker fees. Oh, and no need for the executives to do tiring traditional IPO roadshows that require travel to major financial hubs all over the world. Update: By also doing a direct listing, shareholders, pre-IPO employees included, won't have to wait 6 months to sell their shares.

neom 8y ago

Banks also provide medium term price stability for high volume IPOs, these are not high volume IPOs however, so there is an inherent stability.

rrdharan 8y ago

Spotify ended up spending the same amount of money on expensive middle men: https://www.bloomberg.com/opinion/articles/2018-01-16/spotify-will-pay-banks-to-cut-out-the-banks https://www.bloomberg.com/opinion/articles/2018-01-16/spotif... To me it just seems like a form of fancy marketing.

asdfasgasdgasdg 8y ago
That's not what the article says. It says they paid some money in fees, and more than the average IPO. It does not say they paid more or the same as a percentage than the average IPO. I can't find any information on how much money they/their shareholders ultimately raised, so it's difficult to contextualize that $30M number. But, for example, if only ten percent of the shares were sold in the IPO, that would amount to $500M in sold shares. The typical IPO nets 5% in fees, which would be $35M. On the other hand, if 20% of the company changed hands in the IPO, that would amount to $70M in expected fees. To me, ten percent seems pretty conservative, so I'd say it's a safe bet Spotify saved money. I expect Slack would not do the direct listing if they didn't also expect to save money on the deal.

rajacombinator 8y ago

The bank cartels will punish them. Startup ceos ought to have known this since Google’s IPO debacle.

regulation_d 8y ago
Debacle? An 18% first day bump seems pretty reasonable to me.
- Ericson2314 8y ago
  You don't want the price to blow up!
  - regulation_d 8y ago
    Sure, you don't want to leave money on the table, but an 18% pop is pretty standard even for normal book building. Seems weird to call Google's Dutch auction a debacle when it had the same result as standard book building.