One downside of direct listings is that they don’t raise new funds for the companies involved. That’s unnecessary for some startups that have already raised hundreds of millions of dollars in private markets. But other companies need the new money to fund growth, pay off debt or cash out early investors.
Two of the highest-profile companies in Benchmark’s portfolio, Uber Technologies Inc. and WeWork, chose traditional IPOs -- with dire results for some investors. Uber shares are down more than 30% from the May offering price, and WeWork pulled its plans recently. Then again, Spotify and Slack are also below their debut listing prices. That raises a question of whether IPOs are a scapegoat for a larger problem: Public equity investors just aren’t buying the rich valuations that several large tech startups got in private financing rounds.
That idea was largely ignored at Tuesday’s confab, in favor of criticizing Wall Street. None of the three largest IPO advisers -- Goldman Sachs Group Inc., Morgan Stanley or JPMorgan Chase & Co. -- were featured in the speaker lineup. Goldman and Morgan Stanley also worked on the Slack and Spotify direct listings.
“The takeaway is not only that a direct listing is something you can do, but something you should do,” said Manny Medina, CEO of software startup Outreach Inc., who attended the event. “You’re getting money that should be yours.”