Legendary tech VC Bill Gurley explains why the IPO 'game is rigged' and why Slack and Spotify's disappointing listings haven't shaken his faith that direct listings will become the norm
Legendary venture capitalist Bill Gurley has become something of an evangelist for the direct listing process, an alternative to traditional initial public offerings. BenchmarkThis story requires our BI Prime membership. To read the full article,Venture capitalist Bill Gurley thinks direct listings — a newer, more streamlined way for companies to go public — will eventually replace the traditional initial public offering.
He argues that traditional IPOs are "rigged" against regular investors and the companies that use the process.When Spotify and then Slack used an alternative method of going public, there was a lot of buzz in Silicon Valley that the traditional initial public offering process might soon go by the wayside.
In a traditional IPO, companies hire investment banks to underwrite their offering and help them prepare for it — paying them hefty fees for the service. The investment banks take the companies on a so-called roadshow, meeting with prospective investors. The banks then set a price for the companies' shares that's based on their sense of the demand for them. But they typically underprice the shares a bit so that they'll rise in trading on their first day.
To him, the debate over IPOs and direct listings has almost a moral dimension. Direct listings are democratic, allowing any investor to take part. They're fair and efficient, relying on market mechanisms used for pricing practically every other financial product. By contrast, the traditional IPO process is not just inefficient, it's skewed in favor of the banks and their favored clients.
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