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Silicon Valley investors call a summit to rethink the IPO business

Workplace Messaging App Slack Listed On New York Stock Exchange
Slack CEO Stewart Butterfield, whose company opted for a direct listing rather than an IPO when it went public in June 2019.
(Drew Angerer / Getty Images)

Powerful figures are gathering 2,500 miles from Wall Street to redesign one of its oldest and most lucrative businesses — but few from the industry will have a seat at the table.

Venture capitalists and executives from hundreds of private companies will meet in Silicon Valley on Tuesday to discuss whether the financial industry’s system for initial public offerings is still working after a year in which many of the biggest deals flopped. Attendees plan to discuss alternative strategies including direct listings, which replace financial underwriters with cutting-edge computer code.

“I’m not anti-banker, I’m pro-algorithm,” Bill Gurley, a general partner at venture capital titan Benchmark, said in a phone interview. Gurley, who is one of the meeting’s organizers, said investment bankers, for the most part, are not invited.

For months, he and others including Sequoia Capital’s Mike Moritz have been pitching the benefits of direct listings, in which computers shift privately held shares to public markets without banks buying giant blocks of stock and parceling them out to clients at a single price the night before. Humans, Gurley said, have been systematically “mispricing” IPOs for decades. Fewer banks are typically involved in a direct listing, advising start-ups and helping to drum up investor interest.

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Gurley points to research by Jay Ritter, a professor at the University of Florida who studies how stocks perform after market debuts to judge whether top banks such as Goldman Sachs Group Inc. and Morgan Stanley are optimally pricing shares on behalf of budding ventures. His calculations show start-ups are often significantly underpriced.

To be sure, investors expect IPOs to feature first-day “pops” in price that reward the risk they take supporting a market debut. Yet while companies going public sometimes appreciate the positive press and the demand that such rallies create for future offerings, some entrepreneurs have lamented the money left on the table that could have gone into operations instead of speculators’ pockets.

Although the biggest IPO advisors won’t be making their pitches, the Silicon Valley meeting doesn’t totally exclude finance.

Doug Baird, a longtime banker at Citigroup Inc., and William Blair & Co.’s Carl Chiou are speaking on a panel titled “A Voice of Reason,” according to an agenda seen by Bloomberg. It’s sandwiched between presentations by Gurley and Ritter that are critical of the current IPO model.

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Citadel Securities executive Joe Mecane — whose firm has been the designated market maker on the direct listings of Slack Technologies Inc. and Spotify Technology — and New York Stock Exchange President Stacey Cunningham were invited to speak, according to an invitation shared with Bloomberg News.


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