Hundreds of venture capitalists and high-level executives are meeting in Silicon Valley to discuss whether the current initial public offering (IPO) model is outdated and incorrect, according to Bloomberg.
The meeting comes in a year when many high-profile IPOs have flopped or performed under expectations. At the summit, attendees will discuss whether there are better alternatives to the process, including a direct listing — where, instead of financial underwriters, a computer handles the calculations and takes care of the finer details.
“I’m not anti-banker. I’m pro-algorithm,” said Bill Gurley, a general partner at venture capital titan Benchmark.
Gurley, along with Sequoia Capital’s Mike Moritz, have been talking up the benefits of a direct listing instead of traditional IPOs, where banks purchase giant blocks of stock, then make them available to clients at one price the night before. A direct listing would let computers shift the stocks to the public markets.
Gurley said IPOs have been miscalculating the value of companies for decades. The research for this comes from University of Florida Professor Jay Ritter, who has done numerous studies on whether top banks like Morgan Stanley or Goldman Sachs are pricing stocks optimally. According to his research, many startups are not priced correctly.
IPOs tend to be flashy affairs, garnering press and a nice pop in price if successful. However, many companies say they’d rather use the money on operations and growth instead of letting it line others’ pockets.
While no bankers were invited to the summit, Citadel Securities’ Head of Execution Services Joe Mecane — the market maker on IPOs for Slack and Spotify — was invited to speak. Also in attendance was New York Stock Exchange President Stacey Cunningham.
So far, the 2019 class of IPOs has had a number of unicorns (companies valued at $1 billion or higher), including Uber, Lyft and Pinterest.