Amplitude CEO Spenser Skates in Times Square after ringing the opening bell at NASDAQ headquarters on Tuesday, September 28, 2021 in New York City.
Andrew Kelly | PA
As vocal as Benchmark’s Bill Gurley expressed his preference for direct listings over IPOs, his venture capital firm has had limited success in getting his own portfolio companies to choose this route to the public market.
This may be starting to change. On Tuesday, analysis software provider Amplitude debuted on the Nasdaq via a direct listing. Instead of raising new capital at a discount, the company allowed existing investors to sell shares at a market clearing price.
Amplitude is only the second direct quotation to leave the Benchmark portfolio. Asana, the collaboration software company run by Facebook co-founder Dustin Moskovitz, premiered a year ago.
“I think we’ll see more trades within our portfolio, and more generally,” said Eric Vishria, Partner at Benchmark and Member of the Board of Directors of Amplitude.
Amplitude shares opened at $ 50 and rose more than 9% to close at $ 54.80, giving the company a market cap on a fully diluted basis of approximately $ 7.1 billion. Benchmark, the largest investor, owns 15% of the company, with a stake worth more than $ 835 million at closing.
The direct sign-up trend started with the music streaming app Spotify in 2018. Slack followed in 2019, and Palantir and Asana were notable names in 2020. This year there have been at least six direct signups, including by Coinbase and Roblox, while glasses company Warby Parker is also slated for direct listing this week.
Gurley has bravely defended the approach on TV, Twitter and his own blog, arguing that the IPO process is definitely broken and it is a cheap transfer of shares from companies to Wall Street. He reiterated that sentiment in an interview Tuesday on CNBC’s “Squawk Box”.
“As I have mentioned several times before, the old IPO process has turned into this process where huge day-long gains are transferred from investment banks to their commercial clients,” Gurley said. “There is a modern way to do it. You can actually use supply and demand to determine the price and the allocation and that’s what the direct listing does.”
The early pivot
Amplitude was originally called Sonalight. In 2012, the founders presented their product as part of the Y Combinator demonstration day. They offered a Siri-like app for Android phones that would allow users to send text messages by voice.
The Sonalight team also created software to observe how people interacted with their application. Other start-ups have expressed interest in this technology, according to TechCrunch. It’s a tale that will sound familiar to anyone following the early days of Slack, which was created as an internal messaging tool for a start-up that originally focused on developing online games.
Sonalight gave birth to Amplitude. The founders went through Y Combinator a second time in 2014 and won a check from Vishria at Benchmark.
Vishria describes Amplitude as a ‘money ball’ for product development, referring to Michael Lewis’s 2003 book on Oakland A CEO Billy Beane and his use of unconventional stats to build the best team. baseball possible on a budget.
Amplitude CEO Spenser Skates and co-founders Curtis Liu and Jeffrey Wang focused on improving an app or website by measuring activity at every step so that product teams can make adjustments that might give more desirable results.
Over time, Amplitude has become a tool for various parts of a company’s operations, such as marketing and support. Disney and Walmart signed on as customers, even as Amplitude had to compete with heavyweight analytics software Adobe and Google.
Like Silicon Valley software companies, Amplitude ran into a frightening problem at the start of the pandemic last year, as companies quickly cut spending. Costs rose and revenue growth did not follow, according to Amplitude’s prospectus.
Benchmark’s advice was to prepare for a variety of scenarios.
“The only thing we hadn’t planned during this initial phase was, ‘Oh my God, this will totally reinforce the importance of digital,’” said Vishria. “Everything is going to really speed up.”
Revenue in 2020 ended up climbing 50% from the previous year to $ 102.5 million, and the company’s net loss declined. Growth accelerated this year as second-quarter revenue jumped 66% to $ 39.3 million.
“Not just inventing something”
Skates began seeking direct listings in 2019, around the time Gurley began publicly advocating for companies to choose this option.
Skates attended an event hosted by Gurley in San Francisco, educating venture capitalists and founders on the mechanics and benefits of direct listings.
“I think a lot of qualities, features or characteristics from the direct roster really appealed to him,” Vishria said of Skates. “I find that with a lot of technical engineering founders, they like the kind of neatness. The stock is going to open up, we’re going to match buying and selling, we’re going to get a fair price. just invent something. “
After the event, Skates studied the process and discussed it with other board members. He said there was no universal deal, but they all indicated they would support him anyway.
A director, Neeraj Agrawal of Battery Ventures, said he was backing an IPO, having taken that route with Coupa, Nutanix and others. But in the end, Agrawal understood that there would be no major difference between long-term shareholders and appreciated that there was less dilution for existing lenders.
“What was really clear to us was that IPOs traditionally undervalue companies, and not by little, by much – hundreds of millions of dollars on average,” Skates said. “As a trustee of our current shareholders, it is simply totally unacceptable to do them a bad deal.”
Agrawal called it “a watershed moment for direct listings in my world.”
Amplitude sold shares earlier this year at what amounted to an IPO discount. As of May, the company raised $ 200 million, selling shares at $ 32.02 apiece. At Tuesday’s close, buyers, including Sequoia and Battery, were up 71% in just a few months.
But one of the main advantages of a direct listing is that existing shareholders, especially employees, are not locked in and can start selling shares immediately rather than watching the company hand over shares to new investors, who can negotiate immediately.
“Public market funds – they don’t need the money. They are the richest people in the world,” Skates said. “They will be fine. You have to give it to your shareholders.”
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