This is an NFX matchup where we string clips from past episodes together under the same topic. Startups have many more options today than ever before Morgan much earlier in their life cycles for entering the public markets. Founders are constantly looking for advice on how to think about traditional IPO versus SPAC versus direct listening, and how to even answer the question, am I ready to be a public company?
So in this episode, we hear from Eventbrite co founder, Kevin Hart, Hippo founder, Safwan, and the IPO whisperer, on their experience and advice around taking tech companies public. And now on to the show. Like in the simplest terms, how would you describe a spec? A spec is a shell company that raised money for the sole purpose. Right? SPAC special purpose acquisition. Company. That's what it stands for. It's a shell that raised money to buy an operated company.
And historically because you're about living around for a long time. Historically, it was companies that probably couldn't get public the regular way. Maybe they were in gambling. Maybe all the cannabis companies went public biosec. It was for those that where there was some legitimate fear that they wouldn't be able to get public any other way. Over the past year, that has sort of changed sort of.
And what I mean by that is you still don't see the best of the best going public bias back, but it's certainly the promise of a spec. If you're Pete Flint and you're running truly on this back gonna come to you and say, here's why you wanna do us back instead of an IPO. It's Currier, and we will guarantee you the price of Flint So you don't need to wait to see what the market's gonna pay for your stock. I'm telling you your company is worth $5,600,000,000.
We can shake hands on them right now and go on our merry way. And that's part of the pitch. Is there anything that types of companies that's suitable for each option out of these 4 options? You know, I know open door fences went public, virus back, virgin galactic went public virus back. You know, they seem to be reasonably successful examples.
Like, out of the other in Coinbase, I think, was a direct listing Like, are there any, you know, particular models that are more appropriate for one type of company over another? Yes. At the end of the day, it all is up to management. But let's look at Morgan Galactic. Let's look at the electric car or flying car businesses that are going public by us back. What do they have in common? There's no revenue yet.
And so they are much more difficult to value by traditional public investors because there's so much left to be proven. So it is the company's even open door just beginning to prove its model, frankly. And so companies that are earlier in, frankly, building out the business, can go public sooner if they choose a spat. Now, there's the going public, and there's the being public.
And those are very different things that we'll come back to, but they can probably get public sooner than would otherwise be the case. In the case of Oh, let's look at Spotify because it was the first direct listing. That was a great example of a company to go do a direct listing because the people who owned the stock, when it was still public, the record labels. The record labels are not institutional investors. They're interested in music. They didn't want to be portfolio managers.
So the direct listing allowed them to sell out relatively quickly what they own to get liquidity for the company and to frankly Pete big honking liquid dollars in their own bank accounts and to move along. Didn't really matter to them who owned the stock afterwards. As long as it wasn't them. And the price, you know, a dollar or $5 here or there, sure. Everybody wants Morgan, but again, it wasn't for them.
So that was a great example of a company where the early investors had totally reasonable reasons to wanna get at. Another example of a company that wisely chose a direct listing is Asana, where the largest shareholder, he's also involved on a day to day basis. He's right. And he's the opposite of Spotify. He's not trying to get out. He's just trying to create a liquid market for his employees.
And again, since he's the biggest shareholder, if the stock goes out with a great price good, If the stock goes out with a slightly less price, he doesn't care. And if anything, untoward happened that he could be right there to buy shares back. It was another smart way to go public, but those are the unusual companies. There are certainly others, but those are sort of unusual direct listings.
The less well known businesses, the Morgan probably might want to take a more traditional route because to your point earlier, Pete, the regular IPO route does get you more attention. And if part of the purpose is to build the brand, you might wanna take a more traditional group. And they're just thinking through this box, the number of perhaps companies. We have longer operating history and sort of more traditional types of companies with good revenue that are choosing the spec path.
What might be some examples there? Yes. I think on this background, it is companies that just want to get the dollars in hand that are attracted to the high valuation that they agreed to with the sponsor of this back, the folks who took the shell company public, and are just in a hurry to get out there. And, Kevin, we touched on earlier just around this, you know, a reluctant in certain companies to go public. Just why do you think that is?
And just you also mentioned perhaps, you know, potentially being pushed out of the nest by some investors or or not. What do you think is going on the minds of founders? And then I'd love to touch on like Stripe, for an example, which is a very high profile company, like, seems to be sort of, you know, spending a crazy long time being private. Like, what do you think is going through? They've had it right now. Well, there's always exceptions to the rule.
I think the conventional wisdom, which is changing is to stay private at all cost, but you give the example of Stripe in in that is an outlier of a company of massive size and growth in profits that is, still private.
The expression is that light is the best antiseptic is what comes to mind in that a company out in the public eye will have much more responsiveness in the business and in the performance Whereas what we've seen over the years happen often is just round after round of private capital where governance, often can take a hit poor governance as we saw in WeWork. We see less accountability to the numbers to the right growth measures. And so it can actually have this kind of opposite effect.
Staying private gives a sense of kind of control but I think it's, misnomer, and we're seeing the market now swing back, that pendulum swing back to what we saw in the 90s. And that's staying private for a very short amount of time relative to today. Queue, why do you think that is? I mean, obviously, you know, the time frame sort of was extremely short back in 2000, the dot com Beller, you know, companies would go public, you know, more as a concept in my Pete.
And then you've kinda saw this extension, you know, Facebook, you know, was an example of that and Stripe today. And now you've got this sort of compression again where you've seen companies accessing the public Morgan very, very quickly. What's driving that? What do you think that is? Capitalism is like a pendulum. It never stays right in the center. It always swings one direction or the other. From boom to bust to IPO early to IPO very Pete.
And we're just swinging back from the staying private at all costs back that other direction because the, those thoughts from, you know, the period of the 90s are coming back, having the currency or acquisition, having, kind of marketing event, having this responsiveness to the street, kind of open sourcing your business model, that you can gain insights So there are all these great reasons for going public that were kind of put to the wayside of the previous
conventional wisdom of staying private in the control and ownership and that that brought? Some people think of an IPO as an exit. How should founders think about sort of public listing. Is that really an excerpt for them? Well, there is a company as a case study that went public in the 1980s at a 500,000,000 valuation.
There was a company in the 90s that went public at a $500,000,000 valuation, and that was Microsoft and Amazon, respectively, both worth, you know, the, that have surpassed that magical $1,000,000,000,000 market cap number. So it's an exit is, a misnomer. I think it was term that venture capitalists used that as soon as a company went public, it was their fiduciary responsibility to distribute shares in the the term kind of exit came about.
But today, the reality is is that it's just the beginning of a much longer journey. We are here to build enduring businesses that last for generations, and there's really no difference between private and public. Julia and I, for example, haven't sold a single share of, eventbrite. So we can't say we've exited in any manner. Since the IPO, we've just completely locked ourselves up. It's quite unique to do that. So cute. I'll see you guys.
Maybe switch gears a little bit and let's talk about specs and the route to going public. Kevin, you've been deep in the spec world for a while now. Like, I guess Beller us kind of what was the catalyst to get involved and just what do you focus on as a specs sponsor now? Have a great question.
What we, you know, saw out in the market was that our job is to look for new phenomenon, new companies that are emerging, that are gonna really have an impact on the world in Bitcoin cryptocurrency kind of emerged and was this kind of strain and hated by many phenomenon, which now has a $1,000,000,000,000 market cap. And specs are similarly as they were this strange kind of instrument that would is not as reputable background that were coming into the mainstream, you know, over the last year.
And if you looked at them, we're a very effective or a very effective means to get a company into the public light. So, you know, kind of the job or my kind of mission in quest here is to help this form into in a real industry of helping private companies get into the public markets. So it's kind of like venture capital in the eighties nineties was this backwater niche industry, and we see what it has done today, and it's really transformed the innovation economy.
And we see the same with specs, and it's going through its boom and bust phases right now, but we all know from our experience in tech that that's just how the world works. So let's just take a hypothetical. So let's say I'm running a 100,000,000 revenue startup, 150 people, and I'm getting 7 spec offers a week. If you are advising the CEO, which I know you advised many early stage CEOs, like, what would you advise them to do? And what would be non obvious Yeah.
The question is is do they want to be a public company? And that's the first question because it's not just a spec option. It's a spec option, a traditional IPO Morgan direct listing. So there's really kind of a suite of options so that that's really the first question is, do they want to pin the public markets And the second question is, you know, which direction suits that company the best?
You know, I've obviously biased towards this back route, but at Eventbrite and went through the traditional IPO route. And while it had its challenges, was a good experience for us. So that's starting point. The other side is that for a company that, you know, I'm assuming with a $100,000,000 in revenue and a software business has probably got a steady growth Currier.
And so assuming that it has that steady growth Currier, that it has that right management team in place, all those things that Julia talked about, what it takes to be public should be applicable here. And so then is it Morgan, b, or c, spack traditional IPO or direct listing. So maybe shifting gears a little bit. You announced just recently that you are gonna go public virus back.
And, you know, I'm sure all the audience have heard of specs by this point, but maybe if you could just share a little bit about the rationale behind that and kinda tell us what's going on in terms of what HIPAA is doing. Sure. We've been a lot of thought into that was, oh god, we started being bombarded by different specs, I would say, mid last year. And in the beginning, we kind of like nudged them all out because we thought it's the bottom fields of Wall Street.
I don't know how else to kind of describe it. That was the perception in the market. And it happened several things that basically made the think about it differently. The first one, we became a bit jaded by Wall Street. And what I mean by that is, you know, a lot of, close friends of ours IPO went public. Wall Street presented. This is the price. This is the stock. And then stock went up 80% at day 1. They're all looking at himself, and everybody's like, oh, that's awesome.
But the CFO is saying, damn, I just left 100 of 1,000,000 on the Beller. That's ridiculous. That wasn't, you know, and who are the main customers for Wall Street? Is it HIPPO or is it Wellington? Is it T. Rowe Price or is it, you know, company x? That was the first thing. The second thing, which was, why is it so good to be 25 times oversubscribe? Well, that's looks like a very weird thing for us.
And the component that had to do with, I need an analyst to present my basic forecast instead of me talking to the investors and tell them what I see as my five year kind of forecast. There was just something in the process. Didn't really gel with us well enough. So that was one. And then on the other side, some of our current investors and people that I think the world of, and I think our top professionals on the field started setting up their own specs.
So maybe it's capital, which I think of, you know, amongst the best thing to take investors around and Miki and Nick are amazing. I was like, woah, we'll have this James from. Why did you set up the fund is back in Braconil as well, which is also our investo, you know, and Jared and Mark are, you know, best of breed. So I could have a discussion with people that I trust to get another kind of point of view in the mindset. So that helped us educate.
So we were looking at it, and we became a lot Morgan. Okay. That's really interesting. I do think that there's some components that they put too much weight on the benefit of a spec versus an IPO, which in hindsight doing the process now it was a disproportionate amount of weight. And I can get to that in a minute. So firstly, we went to study this instrument. We were going to do it in IPO. We were, about you know, prepping an s 1 to do a confidential s 1 filing.
So we would you know, the company would have been public. Let me split it into 2 things. I think before any of that coming before anybody consider us back, you should ask yourself two questions before. The first question is the company ready to be a public company? Always missed out on that because you're running a company and all of a sudden, a spat reach you and they go, Flint. Wow. Well, we can be a public company and raise $400,000,000. That's amazing.
But you never stop to say, do you have the right processes in place? Can you forecast, I don't know, eight quarters into the future and Pete raise your Beller? How have you been doing recently on the beaten raise your board. Do you have a GC that can be a GC of a public company? Do you have audited financial documents for the last 2 years as a public company? Do you have a Cecil in the company? Because you're gonna attack like crazy by Beller? Do you have, a CFO that can actually do it?
There's just a bunch of question that you should already ask yourself and people kind of forgot. And we know quite a few people that signed with us back and now we're like, oh, god. We need to do everything. And they're like, will the distinct form? So I think that's the first question. Second question is, is it the right thing for the company to be a public company? Don't know if free companies, the right thing for them to be a public company or in the right timing. We thought for insurance.
It's awesome because we're in a game of trust gonna Pete, a lot of credibility. It's good for our partnership. It's good for a lot of stuff. It matters if Pete is calling my call center and Beller, you wouldn't ask, who are you guys exactly? And one of my agents gonna say, oh, and we're, listed on X, Y, and Z. Like, it just does something which resonates very differently. So You need 1, is the company ready to be public? B is the right thing for the company to be public company.
Once you tick mark these 2 things, which people always forget, Then I have fiduciary duty in front of my board to present to them that there's not just one way to go public. There's actually 3 Flint a standard IPO can do a stack, or we can do direct listing. And each one has a bit of a pause and cons, but it's my job to present the options to my board. At that point of time, we're like, okay. Fine. We're ready. We wanna do let's figure it out.
And we said that there was something in the dichotomy of being a public company, which you're in a warm and fuzzy place of private company. And then one millisecond later, you're a public company and people can trade in and out of your Beller. Everything is out there. And, like, woah, I wanna have something which can I have someone who's somewhat helped me mitigate that transition?
And we came across, you know, read and mark, and is the person who lives in Palo Alto, the optionality to work with treat and mark, it's, I'll be the dumbest person in the world to resist that optionality. It's just a read off man. And Mark Pincus who built a couple of successful and thinking about that and came to the realization that they want to do a spat.
They called it being VC on scale to help a company and specific ventures that they think are in the reinvention and transition mode to build the next franchise of their industry to stay there for a long time. To align, to join the board, to basically help this company grow with a full alignment in the meeting of the mind, and that's why we decided to go with them. And then, so that's on that. So I'm talking too much on this, but I wanna talk about the framework that we did full stack.
Which I think is something you should think about. Please. So after we talked to several, we put a framework on specs and we called it there were 3 components first one was price. By the way, it wasn't about maximizing price. It was, what do we think is a fair price for the company to go public that is gonna be right for our shareholders, right for the Pete investor.
If you're gonna be too high, no pipe investor wanna do it, can we make sure that some growth left in the market that investors are coming in are still gonna do well? I don't wanna go public and then, you know, stock down is 20 It's not something that we wanted. So we put something that we thought that's the fair price for the company and the board was fully aligned. It was more of a gating component. Rather than a maximization algorithm. 2nd thing was certainty.
So because in spec, one of the things is beneficial is you get certainty on the price because I signed on the merger agreement and, whatever it was, February. And that's gonna be the price when we dispatch 3, 4 months down the line as opposed to when you're doing an IPO, which you're like, you know, you're prepping everything. And then you have 10 days that you need or whatever it is doing your road show. And if the window is open, the window is not open, and then you come up with a price.
So I wanna make sure that if I'm taking advantage of the certainty, I actually get the And the certainty you get by several components, there's a couple of paragraphs about minimum financing requirement and stuff like that. But the main one was the reputational risk of our partner because Reid and Mark has more to lose by a scoop of this transaction than Asaf, because they built a bigger reputation for themselves, and they have more and I wanted something that basically aligns that way.
I wanted someone that we call it the industrial strength of a spec. I didn't want off spec. I wanted someone who's backed before, who's gonna have a family of specs later on, who's gonna have the reputational risk on continuation in doing that and know how a relationship with investors, a relationship with the street, and bring us a lot more value. So we call it industrial strength, and that adds to the certainty of the transaction. And the third one was alignment.
We wanted people that are aligned with us and not using it as a transaction, and that has to do with the terms that you have which is, you know, the promote, how they're earning it, the time that they have, until they're basically making. So, you know, we're locked for a certain time, and they're locked for a certain a board seat investment in the pipe and not just in the spec. It does a bunch of things, and then we had this meeting of the mind that the valuation is what we wanted.
We love the partners. We're very certain of this thing, and we look at it as a partnership as opposed to a transaction, which is awesome. And there'll be an alignment. We said finds. I think it's the most preferential way to go public if we can, and that's what we did. Yeah. That's such a terrific story and context. Now I remember taking truly a public in 2012.
And, you know, it's either the time, the kind of expected process, but you look at where it is today and it's sort of credibly antiquated and painful and expensive. And, you know, almost feels like Wall Street and the banks kind of really created this opportunity themselves. Like, you know, when you see this friction in a market, it's like water. Something will flow around it to find a more efficient route.
And then, you know, we'll see what happens with specs, but it's feels like they're here to stay, and I couldn't agree more that, you know, read a Morgan, just exceptional entrepreneurs, that the opportunity to have them in your camp as opposed to purely financially motivated folk it's such a unique opportunity to Currier this to you. At NFX, we believe creating something true significance starts with seeing what others do not.
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