I didn't read the whole thing yet so I don't know if he covers this:

I think many of us (or at least a few loud members) in the tech community have started to see underwriting as a bad form of cronyism. The point jump on opening day becomes substantially about putting money in the pockets of a favored set of investors. Half of that comes from frothing up the public, but the other half comes out of the pockets of the pre-IPO investors and the company. That's not okay.

We know that in a hot neighborhood you want to price your house a little low to get a bidding war going. I get that something similar happens in the stock market. But that's an art of shaving 5-10% off hoping you yield an extra 5-10% over your original price point. We're seeing much, much bigger spreads than that with IPOs, which I take to mean that everyone but the underwriters and their friends are getting screwed.

Part of the problem is that an IPO is not really a fundraising event, often, in practice. Selling shares is just a necessary part of listing. They may not be interested in funds at all.

Instead, the company wants liquidity for existing shareholders or sometimes liquid shares to use as m&a currency.

That tilts the balance in favour of paying a "brokerage fee" in exchange for de-risking and simplification. Occasionally IPOs go badly, and the potential disruption is worrying.

Like with a lot of high finance, competition is weak. So, the "price" of these services is (perhaps, idk personally) high. Also, CEOs run companies, not IPOs. Its just not really a cost you optimize and the market isn't there to optimize it by default.

> company wants liquidity for existing shareholders

Do they? Aren't existing shareholders usually bound to hold their shares for some time (e.g. 6 months after the IPO)?

Have to start that clock sometime

Underwriters only get to keep shares if the IPO is undersubscribed by the public. A bigger part of the problem is that many retail brokerages don't allow IPO participation or require huge account balances to do so, so people can't, or think they can't, buy shares until a new offering starts trading on an exchange.

Tangentially I suppose.

> The story is that there was a big old legacy business that comfortably sold a standard package of features for a lucrative price, and then a bunch of tech startups came in and questioned everything; they unbundled the service so customers could get what they wanted rather than what the legacy players wanted to sell. It’s just that the tech companies didn’t do it as competitors, by offering the disruptive unbundled product, but as customers, by demanding it.

And this is exactly why i immediately lose all respect for any company that choses goldman as their handler in an ipo.

All respect? Really? And immediately?

If one inconsequential event like this warrants such an extreme reaction respect will be in short supply everywhere.

I don't know if it's inconsequential. But Goldman definitely has a well deserved tarnished reputation, especially in recent news of their actions that involved the 1MDB fund.

Slack chose Goldman to lead the direct listing process. They also hired a Goldman senior research analyst to lead the investor relations arm, and likely to then move him up quickly in the finance group to higher exec positions.

Thanks for sharing. I swear, if you want to understand Wall Street, all you really need is Matt Levine. It's more informative than seemingly anything else out there.

Agreed. Levine has a unique ability to peer deep inside the underlying mechanisms of modern finance and explain them clearly. Levine's writing reminds me somewhat of John Brooks, although Brooks was perhaps more interested in personas than mechanics. (If you've never read the Business Adventures collection, it's worth picking up!)

I don't think I've ever come across any written material on the internet that's better than Money Stuff. Matt Levine is a hero (and clearly very smart and measured in his thinking).

great read. levine points out that lockout periods are basically a condition for traditional IPOs by the lead investors, and isn't required in a direct listing. assuming direct listings become a thing, inevitably there will be a big firm that does it and doesn't require a lockout period. i cannot wait to see what happens in that case.

Oh, I love lockout periods so much!

About 20 years ago I worked for a company that went public, and for a while my shares were worth 1.2 million dollars. But I was locked up for 180 days.

By the end of the lockup my shares were down to $10,000. A bit of a drop from the exciting heights of imaginary paper money I had earlier that summer.

But hey, $10,000 I wasn't expecting is better than nothing, right?

Well... Just before they went public they informed me that I needed to come up with $30,000 within 24 hours to exercise my options. So I maxed out my credit cards and got them the money. A few months later they told me, "Oops, we had you in the wrong category, you didn't need to pay us that $30,000 after all, so here's a check for your money back." With no interest, of course, while I'd been paying credit card interest on that money the whole time.

Of course the executives and investors weren't locked up at all, and they got to take quite a bit of money off the table while the money was still good.

Yes, I love lockout periods!

Spotify skipped their lockout period, with pretty boring results.

Wouldn't "boring" results be good for Spotify? Rather than having tons of people selling right off the bat?

Spotify seems to have gone up in the months following IPO, which suggests there is enough liquidity on the market to absorb stock sales by employees and a lockout period is unnecessary.

hard to say with just 1 event. i could see interesting things happening if uber were to direct list without a lockout. there's a lot of hype, value, and losses.

ahh, neat! i assumed they didn't because i assumed levine would have said that in the article. maybe i just glossed over that part.