After cloud warehouse giant Snowflake’s soaring IPO a couple of weeks ago, I waited for a familiar critic to chime in. Sure enough, venture capitalist Bill Gurley unfurled a long Twitter thread later that evening, after Snowflake closed up nearly 112 percent on its first day of trading:
In many ways, $SNOW is the final proof of just how broken process is. Frank Slootman is a HIGHLY experienced IPO CEO. He knows the game, & pushed hard to make sure he wasn’t short-changing the company. But it didn’t matter, because the process is set up to deliver this silliness.
— Bill Gurley (@bgurley) September 16, 2020
Gurley and other critics of the traditional IPO process contend that not only is it an expensive and inefficient way to take a startup public, it also enriches bankers while “robbing Silicon Valley founders, employees, and investors of billions of dollars each year.” The argument, in essence, is that underpriced IPOs let the underwriters and their favored clients buy discounted shares ahead of the public. (Snowflake CEO Frank Slootman dismissed that notion as “complete nonsense” in the case of his company’s public-market debut.)
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This week, two of the most highly valued venture-backed private companies in the U.S. are set to go public, not in traditional IPOs, but via Gurley’s preferred door into the stock markets: direct listings. That method, by which a company lists its stock directly on a public exchange without raising fresh capital, cuts out the underwriting process entirely.
Palantir, the data and analytics company, could be valued at more than $22 billion after it lists directly on the New York Stock Exchange on either Tuesday or Wednesday. And Asana, the workplace productivity and collaboration product headed by Facebook co-founder Dustin Moskovitz, is expected to list on Wednesday.
Direct listings have served as an IPO alternative in recent years, but are now just one of several ways that companies can circumvent the traditional going-public process.
Special purpose acquisition companies, also known as blank-check firms, are another. SPAC formation has far oustriped IPOs this year—there were 183 active blank-check companies as of SPAC Research’s last count on Friday, including 139 that are seeking acquisition targets.
The new worry among some investors now, according to Dan Primack over at Axios? SPAC formation is outpacing the number of attractive acquisition targets for those blank-check companies to buy.
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