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As a long-time former banker, Instacart is 100% the right candidate for a direct listing and Goldman / Morgan Stanley are likely currently pitching them on it i

As a long-time former banker, Instacart is 100% the right candidate for a direct listing and Goldman / Morgan Stanley are likely currently pitching them on it if not beginning anchor investor meetings. It's a win-win from the bankers' and company's perspective. The company feels good about avoiding the "perceived loss" from a day 1 IPO pop (not really how it works but it makes founders feel better) and pay slightly less on a total fee basis. The bankers make more on average because they aren't splitting up the fee pie with 10 other banks and they don't need to backstop the IPO in case things go south on day 1 so they avoid major risk. There's a bit of a relationship loss in not handing hedge funds free Day 1 returns, but those relationships will last given how strong the IPO pipeline is and how much free money has been handed to the hedge funds.

carlineng 6y ago
Practically speaking, how is "raise money on private market, then quickly go public via Direct Listing" different from a traditional IPO? Presumably the late stage private investors get the company at a steep discount relative to what would be available to retail investors, so it doesn't seem that different from an IPO where the majority of shares go to select institutional investors. If the shares pop 50% after the Direct Listing, then couldn't one argue that the company left money on the table during the pre-Direct Listing private round?
- bradleyjg 6y ago
  Yes. The only way to avoid the “pop” is to not need new money. (Edit: if you can hold out a year on current cash you can do a secondary offering after the DL.) Instacart already gave it away to whoever participated in this $265 million private fundraising round.
- joschmo 6y ago
  You've astutely noted the difference between what people think is happening in a direct listing and what actually happens. People think founders are sticking it to Wall Street. In reality, the exact same mechanics are playing out with an IPO but without any downside protection for the company.
  - cracker_jacks 6y ago
    > The NYSE now offers companies the option to raise money in a direct listing after the U.S. Securities and Exchange Commission approved it in December. Doesn't the new NYSE listing format 'stick it to wall st' or at least institutions that get early access to IPOs?
    - nitrogen 6y ago
      I think they're saying that the late-stage private investors are the ones who get the early access.
formercoder 6y ago
And the committee memo is so much shorter when there’s no equity risk!
neonate 6y ago
> As a long-time former banker, Instacart is 100% the right candidate for a direct listing Can you say more about why?
- joschmo 6y ago
  1. Strong liquidity position from several recent rounds of fundraising so they do not need the cash 2. Well recognized brand amongst the investor class / product serves the investor class (similar to a Peloton) so the company would not suffer from a lack of recognition that may plague a Snowflake or Databricks. Allows investors to get comfortable with the story more quickly and through an accelerated process rather than your traditional testing the waters period + roadshow 3. Diversified cap table with many well-known long only and mutual fund names invested already involved
supernova87a 6y ago
> the "perceived loss" from a day 1 IPO pop (not really how it works but it makes founders feel better)... Can you tell us more about this and why it's not the loss people think?
- WrtCdEvrydy 6y ago
  It's hard to find the correct number. Price it too high and the news will report "Instagram opens -30% on their first day". Price it too low and you left money on the table. The best approach would be allowing people to place buy orders on market and then just liquidate as many as you can stock for when market opens but I'm not sure if this is exactly how this will go.
  - dannyw 6y ago
    Who cares if "instagram opens -30% on their first day"? As a company, your objective should be raising the capital you need at the least dilution, not burning money for the sake of some articles that everyone will forget in one week. Who remembers what the pop or not was for <random ticker>? That's right, nobody.
    - mkinsella 6y ago
      Have you worked at a company that has gone public? It's a huge day for the company. Seeing the stock dip is a major morale killer, attributes to attrition, and can cause issues with hiring strong talent.
      - dannyw 6y ago
        This sounds like a communication / internal messaging issue, especially because the financial outcome (end of day share price) is the exact same.
        reducesuffering 6y ago
        Seriously, how is this still going on when literal billions of $ on the line are being squandered to Wall St. every year in IPO's? Especially from tech co's where generally people should have a bit more critical thinking for the end result.
Animats 6y ago
Yes. If you're a major national brand when you IPO, you may not need the road show and support from investment banks.
JumpCrisscross 6y ago
Between SPACs and direct listings, traditional IPOs are for schmucks.

carlineng 6y ago

Practically speaking, how is "raise money on private market, then quickly go public via Direct Listing" different from a traditional IPO? Presumably the late stage private investors get the company at a steep discount relative to what would be available to retail investors, so it doesn't seem that different from an IPO where the majority of shares go to select institutional investors. If the shares pop 50% after the Direct Listing, then couldn't one argue that the company left money on the table during the pre-Direct Listing private round?

bradleyjg 6y ago
Yes. The only way to avoid the “pop” is to not need new money. (Edit: if you can hold out a year on current cash you can do a secondary offering after the DL.) Instacart already gave it away to whoever participated in this $265 million private fundraising round.
joschmo 6y ago
You've astutely noted the difference between what people think is happening in a direct listing and what actually happens. People think founders are sticking it to Wall Street. In reality, the exact same mechanics are playing out with an IPO but without any downside protection for the company.
- cracker_jacks 6y ago
  > The NYSE now offers companies the option to raise money in a direct listing after the U.S. Securities and Exchange Commission approved it in December. Doesn't the new NYSE listing format 'stick it to wall st' or at least institutions that get early access to IPOs?
  - nitrogen 6y ago
    I think they're saying that the late-stage private investors are the ones who get the early access.

formercoder 6y ago

And the committee memo is so much shorter when there’s no equity risk!

neonate 6y ago

> As a long-time former banker, Instacart is 100% the right candidate for a direct listing Can you say more about why?

joschmo 6y ago
1. Strong liquidity position from several recent rounds of fundraising so they do not need the cash 2. Well recognized brand amongst the investor class / product serves the investor class (similar to a Peloton) so the company would not suffer from a lack of recognition that may plague a Snowflake or Databricks. Allows investors to get comfortable with the story more quickly and through an accelerated process rather than your traditional testing the waters period + roadshow 3. Diversified cap table with many well-known long only and mutual fund names invested already involved

supernova87a 6y ago

> the "perceived loss" from a day 1 IPO pop (not really how it works but it makes founders feel better)... Can you tell us more about this and why it's not the loss people think?

WrtCdEvrydy 6y ago
It's hard to find the correct number. Price it too high and the news will report "Instagram opens -30% on their first day". Price it too low and you left money on the table. The best approach would be allowing people to place buy orders on market and then just liquidate as many as you can stock for when market opens but I'm not sure if this is exactly how this will go.
- dannyw 6y ago
  Who cares if "instagram opens -30% on their first day"? As a company, your objective should be raising the capital you need at the least dilution, not burning money for the sake of some articles that everyone will forget in one week. Who remembers what the pop or not was for <random ticker>? That's right, nobody.
  - mkinsella 6y ago
    Have you worked at a company that has gone public? It's a huge day for the company. Seeing the stock dip is a major morale killer, attributes to attrition, and can cause issues with hiring strong talent.
    - dannyw 6y ago
      This sounds like a communication / internal messaging issue, especially because the financial outcome (end of day share price) is the exact same.
      - reducesuffering 6y ago
        Seriously, how is this still going on when literal billions of $ on the line are being squandered to Wall St. every year in IPO's? Especially from tech co's where generally people should have a bit more critical thinking for the end result.

Animats 6y ago

Yes. If you're a major national brand when you IPO, you may not need the road show and support from investment banks.

JumpCrisscross 6y ago

Between SPACs and direct listings, traditional IPOs are for schmucks.