Invest Like the Best with Patrick O'Shaughnessy

Banks rip off companies in IPOs by underpricing the stock so their investors get a kickback.

That's the least charitable way to write it, but it's somewhat close to the truth (the other part of the truth is that pricing is hard which is why we have markets).

DPOs allow companies to list at a reference price without losing out on money - they can sell at the true price later.

Banks naturally make up a bunch of reasons why this is bad, but it's mostly nonsense.

When one side does many of these types of transactions per year (banks) and one side may only do one or two in a lifetime (founders) expect the side with more experience to both tilt the deal in their favor and to have a compelling narrative of why it's actually better for you.

See: https://podcasts.apple.com/us/podcast/bill-gurley-direct-lis...

There's a funny story (I searched briefly, but couldn't find) that when Elon took Tesla public via an IPO and the bankers told him the initial price he just said "no, at least $XX or no deal". I think the bank price was $17 and he said at least $19, but I could be off on the numbers. They did his price and that price was still too low.

It's a mistake for any company to IPO from now on imo, SPACs are even worse really (unless you're running a fraud in which case SPACs are great).

Another strong argument in favor of doing a direct listing to determine market price (and raising privately beforehand if possible).

Anytime one party does a transaction repeatedly as their job and one party does a transaction once (maybe twice) in their life, the transaction will be structured to favor the first group (along with a compelling narrative/PR of why this is not the case).

Airbnb lost out here. It's easy to discount since people are happy to have made money, but I'm not sure this was a stunning IPO considering that. If I was on the company side, I'd be pissed at the initial pricing and the money that was left on the table.

The counter narrative is that pricing is hard and the banks try to do the best they can (with a slight preference for under pricing to benefit themselves). This is probably closer to the truth, but there's a lot of evidence that they're just not good at it.

It'd be interesting to see some clause that if the banks mis-priced by some X% the partners would have to sell and give 50% back to the company. Though I suspect even this wouldn't help because market price is hard to predict even if you're incentivized to try your best.

https://podcasts.apple.com/us/podcast/bill-gurley-direct-lis...

I'm pretty sure you're wildly wrong about this. Comparing metaverse to virtualboy is a big mistake. Metaverse is not vision over substance. Substance is already there and driving technology to a more refined vision.

We’re already spending significant parts of our days working, playing, exploring and communicating digitally. Dating is online. Commerce has moved online. Art and creators are online. Entertainment is online. Exercise is an AR experience. Connecting with IRL and new virtual-only friends is online. What is left? Food, sleep, sex, and odors? Important things, but a relatively small portion of what we do during our awake hours.

The substance part of the metaverse is already here and proven. We are in a period of refinement which includes technological advancements in the ways we experience it. More compact wearables (e.g. AR/VR headsets), 3D audio, High res displays and better visuals/graphics and most importantly, bridging these different types of experiences in some way, which is a software problem. These are the areas in which tech is trying to gain control and offer the cohesive experience.

I highly recommend you listen to this podcast episode with Bill Gurley (second life creator): https://podcasts.apple.com/us/podcast/invest-like-the-best-w...

The counter argument in favor of direct listing: https://podcasts.apple.com/us/podcast/invest-like-the-best/i...

I’m not sure anyone is arguing SPACs are a better idea for the private company?

SPACs can offer some certainty in what may be an uncertain market, but their entire point is that the SPAC creator is selling this certainty by finding an undervalued company they can take over on the cheap. I think a SPAC is a really bad way to go public unless you’re someone like Nikola where your company is basically a fraud ripping off the SPAC, in that case probably a good way to go for the founder.

I’m still skeptical of the a16z arguments defending the IPO pop. When you have banks doing lots of transactions and founders doing only one or two the transactions will likely be skewed to benefit the banks along with a really compelling narrative of why they’re not.

The simpler answer seems more likely here, I think Matt Levine is probably more correct.

https://www.bloomberg.com/opinion/articles/2020-08-06/it-s-a...

In 1997, Hastings and Randolph mailed a DVD to see if it would be delivered without damage. Netflix was created because a new market (home delivery of movies) was created by an emerging technology.

10 years later, Netflix kick started the streaming revolution. In 2008, Netflix licensed the Starz catalogue of 2,500 titles.

In a podcast episode, Ben Thompson said Netflix was his favorite company to write about because they have successfully transitioned their business model multiple times to take advantage of technological shifts.

https://podcasts.apple.com/us/podcast/ben-thompson-platforms...