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Dakin Campbell's Tech IPO: From Steve Jobs to Spotify to Google's Dutch Auctions and Direct Listing

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Dakin Campbell is the reporter you want to talk to when you want to understand Wall Street. Bloomberg News He spent more than nine years in finance before moving to Insider and as a correspondent he has covered the industry for more than four years.

(Disclaimer: Campbell and I were colleagues at Insider for about two years before moving to Fortune.)

Early in his career, Campbell spent approximately four years in San Francisco reporting on Bloomberg’s finances and banking operations. He was highly valuable in the private market and much less valuable in the public market.Campbell, he says, understood the mindset of both Silicon Valley and New York bankers.

“I had a really interesting experience seeing banking through the eyes of a West Coast source,” he told me. “As you can imagine, they see the world very differently than the East Coast investment banks.”

his new book Open to the public, it’s all about the coastal rivalry that has sprung up between Silicon Valley guys who say, “Why not do this differently?” And people on Wall Street say, It cannot be done otherwise. ” (my words, not his). It is a belief found in his report that Steve Jobs essentially conducted his own research into how West Coast men like him were being preyed upon by bankers back in the East. It all starts with an incredible anecdote.

The story unfolding is one every startup founder can learn from, Campbell told me.

The interview below has been lightly edited and condensed for clarity.

I’ve been reading about IPOs for a long time, and your book is what I’ve always wanted: The Secret History of How Wall Street and Silicon Valley Invented the Modern Process of IPOs. Listed. Tell us a little bit about how you were fascinated by this story. Especially when Steve Jobs puts his finger on something that has haunted tech executives for decades, a story that starts with a book.

When I started working as a journalist, it was right in the middle of the financial crisis. So I was really interested in growing up in my career and jumping into that corner of Wall Street and explaining it to people who didn’t understand it. Well, it’s an IPO.

Over the past few years, in 2018 and 2019, WeWork’s IPO didn’t quite get off the ground, which made me think there was a lot going on behind the scenes. My insider coverage sparked my interest in digging down the rabbit hole of how that particular deal went bust and how the IPO market worked, but the system as a whole is in some way I found out that it is built with . It hasn’t always been lucrative for startups and tech entrepreneurs.

I quickly learned that the IPO market has a rich history and it hasn’t always worked out this way. Having spoken with people involved in some of his biggest IPOs in the last 100 or so years, including Ford Motor Company and Apple Computer, Steve Jobs has come to represent the IPO market in terms of profits. You seem to have understood the contradiction correctly. for many people. So Steve Jobs is sitting in a building in San Francisco’s Financial District, bankers at Morgan Stanley, a big investment bank dealing in tech IPOs at the time, and much smaller kinds of boutique investments. He meets with both Hambrecht & Quist bankers. Bank. Morgan Stanley bankers told Steve Jobs that after talking to many investors about how they planned to price Apple stock, they thought they could price it around $18. I’m telling you. Steve Jobs heard it and said, And they told me they think I could price it from $20 to $24 or $26.

And investment bankers at Morgan Stanley are quiet. And they say, “Well, I think $18 is a fair price.”

And he says: $26 or $28? At that moment, Steve Jobs was clearly a great designer, a great business mind about hardware technology, and he saw through one of the Wall Street systems in a way that many did not. was I’m really impressed to see someone here who’s being hailed as smart in the tech field. Lo and behold, he had his 1980 investment banking playbook through the whole time. And he was 40 years later with that playbook intact. That’s what the people in the second half of my book are trying to change.

Steve Jobs pinpointed the flaws in the IPO process in the late 70’s and early 80’s, but as this book makes clear, the next leap will take 40 years. Why did it take someone so long to understand Steve Jobs’ observations?

Between 1980, when Apple went public, and 2018, when Spotify made its first direct public offering, tech stocks have clearly seen a lot of boom-bust cycles. And “first day pops” [when a stock increases in trading to a value far above its listing price] It became a problem that really bugged everyone in the late 1990s, but then the market really fixed [with the dotcom bubble bursting]A lot of people who lost a lot of money in the Nasdaq crash didn’t think so, but if the initial internet boom had continued, they might have seen a backlash later on.

But there hasn’t been a tech IPO for a while. Then when Google went public in his 2004, they really wanted to do something different. So they came up with the “Dutch Auction” and everyone thought Google was going to be something of a harbinger and an agent to change things, but for various reasons it wasn’t. . Many did not see his IPO or auction at Google as a success, squashing broader plans to reinvent the IPO process.

But then came the financial crisis, from which tech valuations began to skyrocket again, and day one pops became a regular occurrence.

You said the WeWork coverage got you on the subject, and that’s what comes to mind for me. It’s the opposite of day one pop. I remember when they submitted the paperwork for publication. It was a big day for Wall Street, who had been waiting years to see their financials. , and eventually published with much lower ratings. do you agree with that?

I think it’s a slightly different case because of the details about the company and its founder. But it is true that he was in WeWork at a time when many people were watching his IPO market and IPO system collapse.

But WeWork has been privately held for a very long time, and raising a significant amount of money before going public is important. Because the innovations I write about wouldn’t have happened if private markets were growing like that. Companies that have allowed them to stay out of the public market for longer than ever before.

The innovations you mention are a big part of your book. Let’s start with Google’s Dutch Auctions. What is it anyway?

It’s called the Dutch Auction because it’s based on how flowers were auctioned in Holland for hundreds of years. [one of the most famous examples of financial speculation in history], the Dutch have been selling flowers for centuries. The way to do that is to start with a high price and lower the price until all the flowers are sold. Google set out to do something similar when it went public.

What about Spotify’s direct listing? That innovation came after his IPO at Google and plays a bigger role in your book.

So, in very simple terms, this is listing your shares directly on the stock exchange. In a traditional IPO, a company issues new shares and sells those new shares to investors by listing them on an exchange. just receive. As a private company, we put them on the exchange. Spotify was able to do that because it didn’t need money, which is the traditional reason companies go public. The private market has grown so large that Spotify was able to raise a ton of money a few years before going public. His CFO at the time, and now he’s Peloton’s CEO, Barry McCarthy, was considering going public. To go public, he wanted to find a way to do it without issuing new shares.

Many of Spotify’s employees and investors wanted a way to exit, but Spotify didn’t need more capital, so Barry was seriously trying to find a way for them to do it.

You’ve talked a lot about what the tech industry thinks the IPO process is broken and about innovation to fix it. I can’t say you’re an IPO expert, but did they fix what was broken or where is the process now?

So there is some debate about this. Since then, there have been only 13 or 14 direct listings, including Spotify. This compares to hundreds of his IPOs in the same period. I’ve argued in my book and tested this with a lot of people who think it’s true, and by giving startup executives the option to go public directly, they actually get more concessions from investment bankers. This means that we were able to pull out the , many of the IPOs that took place after Spotify looked very different than before, in that they included more changes and flexible terms that were more startup-friendly. Although not pursuing , such companies have given bankers and investors permission to push back.

It essentially inspired all of Spotify’s startup peers who were considering an IPO.

Yes exactly. And even if the startup ultimately chose to stick with his traditional IPO, it ended up being a structure that favored them far more than otherwise.

At the end of the book, I briefly mention the pandemic’s SPAC boom, which has taken a different turn since the book was published. Do you see SPAC as an innovation that in some ways works like another form of leverage?

I see them as part of that continuum. Renowned venture capitalist Bill Gurley, mentioned many times in the book, followed Barry McCarthy and Spotify and continued to drum for change. In the summer of 2020, Gurley said SPACs were a legitimate way for tech companies to go public, noting that at the time there was so much competition in the SPAC market that startups would invest. Their investors who can extract concessions and cheaper fees from banks.

Now, the SPAC booms and busts we’ve seen suggest that it may not have been the solution that people thought it was. There are several examples in my book of technology companies that did not sell to SPACs. Slack early on he was approached by Chamath Palihapitiya about running a SPAC, and Airbnb he was approached by Bill Ackman about running a SPAC, both of which declined the opportunity.

This leads me to a big lesson from many of the people I talk to. If you’re a startup owner, you have more power in the IPO process than you think. It’s your company, it’s your idea, and so many people participate in the IPO process and hand it over to people they consider to be experts. to their benefit.

right. If you’re in the IPO stage, it means you have a worthy company, thanks to Barry McCarthy, Spotify, Steve Jobs, Apple, and everyone else who has been there. , which means you have more power. I mean, I think Steve Jobs was pretty confident that Apple would do well, regardless of the pop on day one. But he knew what other tech executives who followed him needed to know.

That is correct. He got interested in the process in a way that many tech executives don’t. So many CEOs and founders happily leave the process to his CFO or investment banker or other advisors they hire.Steve Jobs or Daniel Ek [Spotify’s cofounder and CEO]with Barry McCarthy, get involved and interested in the process, and we’ll tell you what to learn and what’s worth it.

“We can go public the way people always have, or we can work with bankers to come up with something that fits our needs.

right. exactly.

Well, Dakin, thank you for your time. congratulations on your book.