Investment bankers in IPOs are like ticket scalpers in theatre world, says famed Silicon Valley investor

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Published: September 8, 2019 7:33:28 PM

Sequoia Capital's Michael Moritz said that investment bankers in IPOs of technology companies are like ticket scalpers and that more companies are realising that they don’t need such investment bankers anymore.

However, few banks claim that only large or well-known consumer firms are capable of going for a direct listing. (Image: Bloomberg)

Prominent venture capitalist and partner at Sequoia Capital Michael Moritz has said that investment bankers in IPOs of technology companies are like ticket scalpers and that more companies are realising that they don’t need such investment bankers anymore, CNBC reported citing Financial Times. Moritz had made fortunes from his early bets on Google and Yahoo. Music streaming app Spotify and workplace messaging platform Slack, which went for direct listings last year and June this year respectively, have pushed those companies to list without paying enormous fees to investment bankers or enabling them to determine which financial firms get big allocation of their stock.

“The shrewd and the brave” firms have understood that investment bankers have the same position in the investment universe as a scalper does in the theatre world, according to a column written by Moritz recently in the Financial Times. “No actor, theatre owner, producer or audience member enjoys knowing that a ticket tout has run off with money that should belong to them,” he wrote, adding that the same applies to the people involved with private companies.

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Moritz wrote to commemorate the 15th anniversary of Google’s IPO, which was the first concerted effort to “break the hammerlock” held by investment banks. However, the effort wasn’t successful. “But now, due to mounting frustrations, advances in technology and changes in the capital markets,” wrote Moritz, investment banks are about to lose their position forever.

However, few banks, according to Moritz, claim that only large or well-known consumer firms are capable of going for a direct listing while smaller firms or those not having a lot of cash won’t be able to do that even as many firms “operating in obscure niches are publicly traded.” While companies that are about to go for IPO will perhaps choose a traditional IPO approach but for companies that would be listed in future, picking between traditional IPO or direct listing would be a test of their courage and intelligence, according to Moritz.

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