VC Veterans Host Emergency Meeting Of Unicorns As IPO ‘Bubble’ Implodes

Recently, we have uncovered evidence that the proverbial tide is going out and also determined who is swimming naked.

SoftBank Vision Fund is one of those without a bathing suit, caught in a bind over several of its investments that are imploding, WeWork and Uber are to name a few. 

We have documented how the global IPO market is seizing up, along with the global M&A industry in decline. 

Last week the Peloton IPO collapsed, turned out to be one of the worst opening trades for a unicorn IPO since 2008. 

Now top venture capitalists, who are primarily based on the West Coast, are hosting an emergency meeting on Tuesday, invited more than 100 startups that will be advised not to IPO in the year ahead but rather use direct listings, considering numerous IPO failures seen this year.

Benchmark Capital partner Bill Gurley, one of the organizers of Tuesday’s meeting, told Reuters that two dozen venture capital firms would be advising more than 100 startups on how to go public in 2020. 

Gurley said technology startups would need a more reliable alternative to the traditional IPO underwritten by investment banks, especially since what has happened to the latest IPO disasters: Peloton, Uber, and Lyft. 

He warned of investment banks, like Goldman Sachs and JPMorgan, who have been “fleecing” companies by intentionally underpricing shares on IPO day. The ability to underprice then pop the new issuance enables the investment bank’s clients to make a quick gain. 

Reuters notes that “underpriced IPOs provide the company less capital and diminish valuations for early investors such as venture capital backers, and any investors or employee stockholders who sell in the offering do not realize full value for their stakes.”

David Golden, a retired JP Morgan banker who is now managing partner at Revolution Ventures, said price action on IPO day doesn’t determine the whole story. 

“If in the first few days of trading it doubles because there’s all this retail sentiment … and then it trickles down over the next two, three months, maybe even four months, then they probably priced the deal right,” said Golden.

Golden said direct listings could be the right solution for technology startups that don’t need to raise capital. 

Venture capitalist sources told Reuters that Airbnb Inc is likely slated for a direct listing in 2H20. 

Gurley said investment banks popping the stock on the first day is a market failure: “Giving away five hundred million dollars in one day – it’s really hard to justify.” 

And here’s Gurley in 2016 when he spoke with CNBC’s Carl Quintanilla and Jon Fortt at the Code Conference about the “culling of the Silicon Valley herd,” his prediction of a bust cycle in Silicon Valley was likely three years too early.

With the IPO market bust underway, venture capitalists are now resorting to direct listings to dump worthless unicorns onto unsuspecting retail.