Companies like Airbnb, Roblox, Robinhood and Coinbase are widely used and known. This is especially true for consumer startups. Most tech startups are also way better known by the time they go public. In fact, letting that relationship be primarily mediated by the investment banking process adds friction to the process and is less effective. Founders have the ability to directly build a relationship with the investors that will anchor their IPO. They already have been tracking companies for years and want to know the founders and their companies directly. Firms like Tiger, Coatue, Durable, and D1-or even T Rowe Price or Fidelity-don’t need to be introduced by bankers to companies. Many of the tech equity funds now do both public market and private pre-IPO investing (and increasingly even earlier stage). The ability for companies and public market investors to connect more directly has never been easier. 3 i honestly wrote this entire piece only as a setup for this joke. 2 What makes SPACs and Direct Listings notable is not their cost structure, but that they allow companies to much more directly market their IPOs. And the roadshow is a progressively smaller component of investors’ views on the company. Founders and companies can increasingly communicate their narrative in a direct and compounding way to investors. The best founders have figured out that owning their narrative gives them meaningful leverage. And as investment banks increasingly manage only the logistics of the IPO process, they become less important in dictating its terms. Companies are more known and thus the relative leverage and importance of the sell side is falling. However, discovery is no longer the constraint. 1 Banks used to be gatekeepers because markets needed to be told which companies were good. While investment banks view themselves as having an important role in guaranteeing the quality and rigor of which companies are ready to IPO, that seems less true today. In every marketplace one’s power is proportional to their value added to the transaction.
Companies may have potential, but they don’t know how to introduce themselves to the investor community in the public markets. Instead, what matters is the standardized process for making the company fit the mold investors expect from an investment asset. In this model, the company is not that special. In this environment, it was the idiosyncrasies of the capital markets that mattered, not the uniqueness of each company. And especially for enterprise startups, retail investors had no exposure or familiarity with them. Investment firms were not focused on tech companies. Historically, raising capital was difficult and public market investors had little awareness of the companies going public. Not in all sectors-in most sectors investment banks still occupy the same role-but in tech, the importance and role of investment banks has shrunk and commoditized. This is the role investment banks have played for decades, but in recent years this dynamic has begun to break down. They help gussy up companies, teach them proper manners like how to do GAAP accounting, and bring them around to call on prospective investors and eventually debut to society. If the IPO process is like a debutante ball, the top investment banks are akin to a finishing school.