A Handmade IPO for Bankers, BrokerDealers and Maybe Investors

Posted on March 5, 2015 by admin

BrokerDealer.com blog IPO update and profile of Etsy.com pending initial public offering is courtesy of extract from 5 March story by Bloomberg View’s Matt Levine, “The Etsy IPO and the Triangle Document.” Brokerdealers and bankers alike have been anticipating Etsy’s IPO launch as it could be a big test for companies that have growing businesses and devoted followings and are considering launching their own IPOs. Etsy is a peer-to-peer e-commerce website focused on handmade or vintage items and supplies, as well as unique factory-manufactured items. Now from Bloomberg View’s Matt Levine…

How twee.

You occasionally read about banks’ pitches to take hot companies public, and they are often cringe-worthy: Bankers wore band t-shirts to pitch Pandora, and UBS dressed “around 75 of its employees in Lululemon gear and had them descend upon Central Park for a ‘flash mob’ yoga session” to pitch Lululemon for some reason. What do you think Goldman Sachs, Morgan Stanley and Allen & Company did to win the Etsy initial public offering? Did they hand-write the pitchbooks in fountain pen? Crochet them? Or just produce them normally in PowerPoint on their computers, but they were wooden computers? Did everyone else know about this?

The company was founded by Rob Kalin, a carpenter making handmade wooden computers with nowhere to sell them.

So obviously the Internet beckoned. Anyway, Etsy filed its preliminary prospectus yesterday, without a lot of capitalization numbers; Bloomberg reports that it’s seeking to sell about $300 million of stock, while DealBook estimates its pre-money valuation at about $322 million, so, that’s kind of weird. Use of proceeds is “general corporate purposes,” as one does, plus putting $300,000 — 10 basis points of the deal? — into the company’s Etsy.org nonprofit. But unlike a bunch of the internetty companies that I make fun of for going public for no particular reason other than cashing out insiders, Etsy is growing, had a $15.2 million net loss last year, and could probably use the money. (It’s also cashing out some insiders obviously.) The filing also emphasizes “authenticity” and includes this graphic explaining why Etsy works:

To continue reading Matt Levine’s article from Bloomberg View, please click here

FOMO Is Leading To Cramming Of Startups According To One Capitalist

Posted on February 23, 2015 by admin

Brokerdealer.com blog update courtesy of the Wall Street Journal.

Venture capitalist and Benchmark partner, Bill Gurley, advised people against “cramming” too much money into startups, such as Uber, Snapchat, and WeWork, at last week’s Goldman Sachs technology conference. Following his speech, Gurley gave even further insight to investing in startups and how the slang word, FOMO, plays into investing.

After speaking about the risks of “cramming” too much money in startups at the Goldman Sachs technology conference last week, venture capitalist Bill Gurley exited the stage.

More than a dozen investors swarmed the lanky partner of Benchmark, eager to speak with him— but few were planning to heed the venture capitalist’s advice. According to Gurley, one man, who represented a large mutual fund, asked, “You don’t want us to invest in this but the big tech stocks are not delivering enough growth and my competitors are getting into these startups, so what are we supposed to do?”

Gurley says he didn’t have a good answer but he wasn’t surprised by the sentiment, which he describes as FOMO, a slang popular among millennials that stands for “fear of missing out.”

It is this infectious FOMO, according to Gurley and other venture capitalists, that has created a flotilla of billion-dollar startups with ever-soaring valuations and mixed financials.

According to The Wall Street Journal’s Billion Dollar Startup Club, there are now at least 73 private technology companies worth more than $1 billion dollars, versus 41 a year ago. Some, such as Uber, the $41.2 billion car hailing app backed by Gurley’s Benchmark, are worth enormous sums. At least 48 companies were valued at $1 billion or more for the first time, and another 23 members moved up the ranking after raising more money.

Many investors are treating these 73 companies as if they were publicly traded, says Gurley. They are investing sums of money usually reserved for IPO offerings and, sometimes, giving away those dollars with the kind of confidence usually associated with investors who’ve perused regulatory filings for detailed financial information. The investors themselves are a blend of traditional venture-capital players and typically public-market investors: hedge funds, mutual funds and banks. They are sort of meeting in the middle, with the venture capitalists investing in later-stage companies than they have historically done, through new growth funds, and the institutional investors getting in before the IPO.

“We’ve been calling this the private-IPO slice,” said David York, managing director of Top Tier Capital Partners, a fund of funds. “The valuation of risk is a public-market thought process versus a private-market thought process.”

Gurley, who has become a vocal critic of irrational behavior in the industry, says he’s also very worried about the pile-up in the “private IPO” market.

He’s worried that venture capitalists’ new bedfellows, such as mutual funds, are too new to venture capital to properly weigh the risks and realize that these billion-dollar companies are not guaranteed home runs.

“This replaces the IPO — but not all these companies are IPO level candidates,” he said. “Would you hand a teenager $200,000?”

According to data collected by The Journal, of the 29 firms that have invested in five or more current billion-dollar startups, only about half are traditional venture-capital firms. The rest are a mix of institutional investors, such as the Dragoneer Investment Group and Tiger Global Management, and strategic investors, such as Intel and Google. Near the top of the list is Tiger with 12 investments in private billion-dollar companies, and T. Rowe Price Group with 11. In this group, Tiger also raised the most money last year, keying up $4 billion, or 12% of all venture capital raised in 2014.

With such financial heavyweights jumping in, many of their peers are wondering: Can I afford to sit out?

It’s difficult to quantify exactly how much money is sloshing around at this level. Several top venture capital firms have raised large growth funds in the past few years, but total contributions from hedge funds, mutual funds and banks is practically immeasurable without knowing how much each invested in particular funding rounds. Whatever the amount, this layer of growth capital could warp prices, venture capitalists say.

“It’s like traffic on the highway, you add just 5% more cars and it slows down traffic considerably,” said Glenn Solomon, a managing partner at GGV Capital. His firm is an investor in four companies in The Billion Dollar Startup Club.

In some ways, Gurley’s firm has benefited from this influx of pre-IPO capital. His firm is an early investor in four companies in the Billion Dollar Startup Club: Uber, Snapchat, WeWork and Jasper Technologies. All four have since raised money from a big public-market investor.

For the entire article from the Wall Street Journal, click here

Shake Shack IPO Could Leave Bad Taste

Posted on February 18, 2015 by admin

Brokerdealer.com blog udpate courtesy of Forbes’ contributor Jeff Golman.

In late December, brokerdealer.com blogged about the exciting news regarding Shake Shack applying for an IPO. Shake Shack, a New York burger chain burger chain created by famous restaurateur Danny Meyer, is known for its fresh cut fires, 100% all beef burgers and hot dogs, and most of all its delicious shakes. The chain has been growing ever since its opening in New York City in 2000 and now has 63 locations open worldwide. Forbes’ contributor Jeff Golman believes that the burger chain’s IPO is too good to be true and is overdone.

By now, I’m sure you know all about Shake Shack’s recent IPO. The burger chain’s nearly $2 billion valuation and 130% pop on day-one of trading was nothing short of impressive, albeit slightly anticipated.

Shake Shack is just the most recent in a string of “fast-casual” restaurants to go public in the past 10 years, and investors are eating them up. However, it’s important to note that Shake Shack’s unit economics and demographic positioning made this a particularly interesting investment opportunity, which will be incredibly difficult to duplicate. And while the IPO may be a positive sign for similarly-placed restaurant concepts, it cannot be applied across the board.

The public offering has always been a credible and attractive exit opportunity for the right concept, but it has boomed in the past year with some 1,205 issuers raising nearly $249 billion globally, according to data from Thomson Reuters. Increased confidence in the U.S. economy, low interest rates and positive IPO performance have combined to encourage businesses to make offerings and investors to take greater risks.

However, just because a company can go public, doesn’t mean it should. Successful IPOs require a very impressive growth profile, and even the most well-positioned company still runs the risk of failure. Therefore, for many, a merger or acquisition may be a safer, smarter and preferred method of growing and funding a business.

One of the major challenges of going public is the overwhelming emphasis on short-term financial performance. For example, the moment Shake Shack comes out with a disappointing quarter, its stock will likely drop, and possibly sharply. Since shareholders and analysts tend to concentrate on short-term earnings rather than long-term return on capital, public companies must often shift focus to meeting quarterly targets rather than bolstering strategic opportunities and innovation. In short, it’s hard to invest in long-term growth when you’re battling the markets.

Another significant roadblock in the IPO route is that they don’t generate immediate liquidity. The ability to cash out completely on day one is unique to M&A exits, and in today’s robust M&A market the more quickly this money can be put to work, the better.

2014 was the strongest year for deal-making since before the recession with a 47% increase in the total value of worldwide M&A since 2013. There’s a lot of money in the private market right now, and anyone looking to exit should consider taking advantage. The lower costs, corporate stability, decreased risk, greater flexibility for management, and more stable valuations provided by a merger or acquisition far outweigh the benefits of being listed on the public market. Yes, IPOs are hot right now, but the problem with heat is that it always dies down. It may be easy to label Shake Shack’s offering as a success today, but time will tell if they can live up to the hype.

It’s in our nature to look out for “the next big thing,” and once we find it there’s no turning back. But there is something to be said for stability and consistency. One of the reasons Americans love burgers isn’t just the delicious taste, but the sense of nostalgia we feel when we eat them. They bring us back to the good old days when life was just a little bit simpler. Just like a good burger, M&A is a slow cook aiming to provide the best flavor.

For the original article, click here

China IPO News Sequel Part 3: Film Industry Deals Land On IPO Cutting Room Floor

Posted on February 4, 2015 by admin

While the initial public offering market in China is percolating, it appears that film industry IPOs are not yet ready for prime time. Below BrokerDealer.com blog update courtesy of extract from 3 Feb edition of Hollywood Reporter

China Film Group’s planned $740 million stock market listing has been delayed after the state-owned colossus failed to provide sufficient documents for an initial public offering, local media reported.

Shanghai Film Group’s plans to raise $155.45 million from its listing have also been delayed because of insufficient documents, the Beijing Business News reported.

China’s film market is the second biggest in the world and has grown rapidly, and the listing of China Film Group and Shanghai Film Group is read as a sign of concerted effort to build up an infrastructure for future growth and help the industry compete with Hollywood.

However, local commentators say that regulators are trying to cool the pace of initial public offerings, as the market is becoming overheated with companies trying to gain access to the film and TV industry via backdoor investments and mergers.

A prospectus issued in June 2014 said China Film Group was trying to raise $740 million.

China Film is a giant in the Chinese film industry. In addition to producing, importing, exporting and distributing films, it also operates theater chains, sells film equipment and manages talent.

The newspaper quoted Peng Kan, research and development director of the Legend Media consultancy, saying that China Film Group had an advantage over other film companies because it provided greater distribution and also enjoyed government allowances and a favorable tax policy.

China’s biggest cinema chain, Wanda Cinema Line Co., raised $210 million in a Shenzhen stock exchange listing last month.

There are fears that regulators are trying to slow the pace of IPOs. Investors feared that IPOs had effectively been frozen before they resumed on the country’s two bourses in early 2014 after a hiatus of 14 months, allowing around 50 already approved companies to list on the Shanghai and Shenzhen exchanges.

China IPO Market Mints Two More Bejing Billionaires; Video Game Maker Kunlun Tech and Spring Airlines Execs Profit from China A-Share Market

Posted on February 4, 2015 by admin

BrokerDealer.com blog update courtesy of reporting from 3 Feb edition of Bloomberg LP.

Zhou Yahui, chairman and president of Beijing Kunlun Tech Co., became a billionaire after shares of the Internet video game developer more than doubled since its trading debut two weeks ago.

Zhou, 37, has a $1.7 billion fortune, according to the Bloomberg Billionaires Index. The stock surged by the 44 percent stock exchange limit at its trading debut on Jan. 21, and climbed by the maximum daily price increase of 10 percent for nine straight days.

The new billionaire is the second in China this week as investors are showing an increasing appetite for the nation’s initial public offerings. Kunlun Tech is also riding a rally in the Shenzhen Composite Index, which tracks equities on the smaller of China’s two stock exchanges, whose 8.3 percent return this year beat all benchmark indexes in Asia.

“Shares jumped because new stocks are rare in China’s A- share market,” said James Hu Jiaming, a Shanghai-based analyst from China brokerdealer Capital Securities Corp., adding that “online gaming has been riding a bull market since the second half of last year.”

There has been an “accelerated growth” in the online gaming industry, driven by the popularity of mobile-phone applications such as WeChat, he added.

The gains haven’t made Kunlun Tech expensive relative to its peers. The stock is trading at 34 times earnings, compared with 240 times for China’s information technology companies, according to data compiled by Bloomberg. The Shenzhen index has a multiple of 37.

Spring Airlines Co. Chairman Wang Zhenghua became a billionaire yesterday as the stock surged following the company’s initial public offering, the first for a Chinese airline since 2002.

Shares of the low-cost carrier also jumped 44 percent on its trading debut on Jan. 21 and rose by the daily limit for a ninth day today, pushing his net worth to $1.1 billion, according to the Bloomberg Billionaires Index.