In fgeneral As a rule, I refuse to worry about the money the bankers make. Historically, they have been very successful, and I suspect they will continue to do so. Likewise, I don’t care how much money venture capitalists make. Not really. Sure, it’s nice to find chord-specific feedback here and there, but frankly, I precisely don’t care at all what a particular VC gets out of it.

But today we have to worry a bit about the two, because we have to talk about direct listings, IPOs and private company pricing. Yes, we are talking about Amplitude’s recent debut in the public market.


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What follows is a dive into the IPO pricing problem and how startups seek to get around the problem through alternative listing mechanisms. We’ll end with notes from an interview with Amplitude CEO Spenser Skates on the same topic. If you care about the value of private businesses and how they’re priced, this is for you. If you don’t, please read anything other; you will get bored with your socks on.

Let’s go!

The problem with IPOs

Earlier this week, we asked if direct listings would be able to solve the IPO pricing problem. Or, more simply: Could direct quotes coupled with last-minute private market fundraising help startups avoid day one IPOs?

A pop IPO is what happens when a company prices its initial public offering at a lower price than it starts trading. A little pop is generally considered healthy. A big pop is considered an error.

In more concrete terms, if a company is priced at $ 45 per share on an IPO and starts trading worth $ 46, good job. Hell, even $ 48 wouldn’t be controversial. But when a business costs $ 30 and opens at $ 45, it doesn’t matter if its stock returns to Earth later. A sin has been committed, at least in the eyes of the company and its private funders.

There are two issues with IPO pops that annoy startups and their investors:

  • First, they imply that the start-up company could have raised more money, or the same amount of capital, with less dilution. It makes sense.
  • Second, private companies and their partial owners (VCs) do not like free money being handed out to others, such as when bankers price too low for an IPO while ensuring a large allocation in the IPO. the deal for their own clients; Watching newly arrived bankers hand out profits for little work irritates (reasonable) founders and (less reasonable) venture capitalists.

The problem with pop IPOs has become more acute in recent years, as some high-priced public offerings have shown insane results on day one, opening or closing their first day as public companies worth much more than they are for. expected relative to their value. formal public offering price.

One way to dodge a pop IPO is to lead the list. In a direct quote, a company simply begins trading. A benchmark price is set, but it is largely a made-up number that people ignore. It doesn’t matter much. And because the company in question does not set a formal price for itself, it cannot suffer from a poorly priced IPO. Huzza; we have solved the problem.

Except we didn’t. IPOs have some good things that everyone can agree on, the main one being that they raise primary capital. By this we mean that the company that seeks to list its shares in the traditional way sells shares as part of the transaction. That’s why he has to set a price; he must name a number to which he sells primary stock in his IPO.

With direct listing you take the pricing issue out completely, but it can be a bit baby shower if a business also wants to raise capital to fund operations, growth, or whatever. So the unicorns have come up with a wise compromise that seems like a solution: raise a huge last round of private capital, then quickly lead the list. This separates the pricing of the business from the start of trading.

Amplitude did just that earlier this week. He raised a closed, multi-part Series F at $ 32.0199 per share a few months ago and then traded directly.

However, there are issues.


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