Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit.
Programming note:Money Stuff will be off tomorrow, back on Monday.
Coinbase Global Inc., the big cryptocurrency exchange, went public yesterday in a direct listing that ended up valuing it at about $86 billion. Here is an odd fact:
Coinbase Chief Financial Officer Alesia Haas said in an interview Wednesday morning that one of the reasons that the company picked Nasdaq was because the bourse offered the ticker symbol "COIN," which wasn’t part of the New York Stock Exchange’s pitch.
"Ultimately that they had the ticker COIN, and that was a really great ticker for us to get," Haas said.
So, one, yes, she’s absolutely right, that's a great ticker for them to get, and of course they couldn’t go with NYSE if Nasdaq offered them the COIN ticker. Finance is not especially rational these days, and investors want a good ticker, so you have to give them one.
Second, how weird is it that Nasdaq owned the COIN ticker? As far as I can tell, the rules allow each exchange to reserve a small number of tickers for their own use forever, and a larger number of tickers temporarily (for up to two years). You might think that the way this would work would be (1) the exchanges pitch a company on going public, (2) the company chooses an exchange, (3) the company chooses its preferred ticker, (4) the exchange reserves that ticker, and (5) eventually the company goes public with that ticker. But apparently there is nothing to stop an exchange from squatting on a ticker and saying to the company "hey, if you want the only logical ticker, you gotta go with us." What a strange competition.
Anyway, Coinbase was also the first big direct listing on Nasdaq. An odd thing about direct listings is that you don’t know how much stock was sold. In a traditional initial public offering, a company says "we are going to sell 10 million shares, and our current shareholders are going to sell another 5 million shares," and then they sell those shares, all at once, at a single price that the company’s investment banks negotiate with public investors. And then the stock opens for trading and the public investors can trade it among themselves, but generally the company and its early investors sign lockups promising not to sell any more stock for a while. So those 15 million shares are all the shares that you can buy or sell, for months, and investors just trade them back and forth.
With a direct listing, the stock just opens for trading on the stock exchange. It opens with an opening auction, the same way every stock opens every morning on the stock exchange: People who want to sell put in sell orders, and people who want to buy put in buy orders, and the stock exchange’s machines match them up to find a market-clearing price. (In practice, the machines send out notices about what the price seems to be, so that people can put in more orders, in an iterative process that can take a while; Coinbase didn’t open until about 1:25 p.m. yesterday.)
Generally speaking you’d expect that the only people putting in sell orders, in that opening auction, would be the company’s private investors: They’re the only ones who have any stock to sell.
But a second after the stock opens, the stock will trade normally on the exchange, and there will be buyers and sellers. Some of the sellers will be people who bought the stock in the opening auction and want to flip it; other sellers might be early investors who owned the stock before the direct listing, decided not to sell in the opening auction, and then decided to sell later — a second or minute or hour or week later — in regular market trades. There’s generally no lockup, so they can do that any time. If you buy on the stock exchange, you won’t know if you’re buying from a hedge fund flipping stock it bought a minute ago, or from a venture capitalist who owned the stock before it went public, or from the company’s founder.
A theory that I sometimes hear from capital markets bankers is that IPOs result in higher stock prices than direct listings, because in an IPO there are just fewer shares available. If a company sells 10% to 20% of its stock in an IPO — sort of the normal range — then there just won’t be that much supply; people wanting to buy the stock will have to buy some of that relatively small supply from other public shareholders. (This is sometimes given as an explanation of the IPO pop.) If a company does a direct listing where most or all of its stock is available for sale, then there will be a lot more supply, so the price will be lower.
Coinbase has about 186 million shares outstanding
; it registered almost 115 million of them for sale in its direct listing. About 81 million shares traded yesterday, at an average price of $366.87, for a total of about $29.7 billion of trading. Presumably Coinbase’s private shareholders did not sell 81 million shares yesterday; presumably most of that trading was new public shareholders trading among themselves. On the other hand, in the opening trade, some 8.84 million shares were sold for $381 each, for a total of about $3.4 billion of stock that definitely came from Coinbase’s existing private shareholders. That’s the minimum amount of stock that existing shareholders sold yesterday — the minimum size of the IPO, as it were — and the maximum is something less than 81 million. A broad range.
You can see something like this in the price action: The stock opened at $381, and 8.84 million shares were sold at that price; the stock then climbed (as you might expect from an IPO with limited supply), and then it dropped (as you might expect if more insiders sold and more stock became available), closing at $328.28. If you are an early Coinbase shareholder who sold in the opening trade, you did well; you didn’t "leave money on the table" by selling at a low price and then watching the stock climb. You just sold at the market price, in a market without a lot of supply.
AvePoint Inc. is a private company, "the largest data management solutions provider for Microsoft 365." It is planning to go public by merging with a special purpose acquisition company called Apex Technology Acquisition Corp.; AvePoint and Apex signed a merger agreement last November. The merger is taking a while: As is standard in SPAC mergers, Apex’s public shareholders need to vote to approve the deal, and the U.S. Securities and Exchange Commission has not yet approved the proxy statement that Apex has to send to them before they can vote. As we discussed on Tuesday, the SEC has also raised accounting questions about the warrants in SPAC deals, which may further delay the proxy and the deal.
Meanwhile AvePoint is chugging along, providing data management solutions for Microsoft 365. It announced preliminary financial results for the first quarter yesterday. It did not have a profit, per se — it will have a loss of $4.1 million to $11.9 million — but I guess that’s pretty good for a company going public through a SPAC. It has about $65 million of cash.
It also announced a share buyback. Of the SPAC’s shares:
In addition, today AvePoint announced that the Board of Directors has authorized a share purchase program pursuant to which the Company may purchase up to $20.0 million of Apex Technology Acquisition Corporation (NASDAQ: APXT, "Apex") common stock until the date on which the SEC declares Apex’s S-4 Registration Statement effective. The closing of the business combination remains subject to customary closing conditions, including SEC review and the approval of the shareholders of Apex and AvePoint. In light of the recent SEC statement regarding accounting and reporting considerations for warrants issued by Special Purpose Acquisition Companies, or SPACs, Apex, together with its advisors, is reviewing the terms of its warrants in order to determine the proper accounting treatment.
"This share purchase program demonstrates the Board’s confidence in our future and our commitment to deliver value to our shareholders," said Dr. Jiang. "Our strong cash flow and balance sheet enable us to create value for our existing shareholders by reducing dilution associated with the proposed business combination at what we believe to be an attractive valuation."
I love it!
Sometime in the next few months (it hopes), AvePoint is going to go public; it will raise about $230 million for itself by, effectively, selling stock to SPAC shareholders, and will raise another $262 million to partially cash out its existing private shareholders.
In effect, it will sell about 49 million shares to the SPAC shareholders and new PIPE (private investment in public equity) investors, at $10 per share, like an IPO but at a fixed, known price.
But now it thinks that deal is just a touch too dilutive, so it’s going to buy back about 2 million shares. And since the IPO — I mean, the SPAC merger — hasn’t happened yet, and won’t for a few months, it’s going to buy back the shares first. First buy back the stock you don’t need to issue, then issue it. Sure.
The stock — the SPAC stock — closed yesterday at $11.15 per share, suggesting that public shareholders of Apex think they’re getting a good deal on AvePoint. I suppose that’s a reason for AvePoint to buy back stock, though it is also a little awkward; if you buy stock at $11.15 knowing that you’ll issue it a few months later at $10, you are kind of wasting $1.15 per share.
AvePoint isn’t committed to buying anything — the buyback "will be subject to market conditions and other factors" and "AvePoint is not obligated to acquire any particular amount" — and perhaps they’ll only buy if there are dips.
You could tell more cynical stories. The way that SPACs work is that shareholders of the SPAC have withdrawal rights: If they don’t like the deal, they can demand their money back (here, about $10.05 per share in cash held in Apex’s trust). The stock is trading at $11.15 now, so presumably Apex shareholders like the deal, but they still have a few months to change their minds. If the stock drops below $10.05, it would be rational for Apex shareholders to redeem, meaning that AvePoint might get considerably less than the $492 million it’s expecting. Spending $20 million to stabilize the stock — to provide a bid to try to keep it above $10.05 — might conceivably firm up that $492 million (er, $472 million). I don’t particularly believe this story — $20 million isn’t all that much, and anyway the buyback cuts off when the SEC approves the proxy statement and so can’t prop up the stock in the home stretch — but I suppose this is a possible reason for a pre-SPAC buyback.
I guess the limit case is to buy back all the stock. We talked the other day about a SPAC deal (for Grab Holdings Inc.) where the money in the SPAC’s trust was not really the point of the deal, because Grab was raising way more money from PIPE investors than from the SPAC itself. Here, arguably the money in the SPAC’s trust is not really the point of the deal, because AvePoint is already retiring shares; it doesn’t really need (all) the money. What it needs is to go public. The SPAC mechanism lets it do that, even if the money is an afterthought.
Private markets are the new public markets
The traditional way for private capital markets to work is that an investor is a long-term partner of the companies it invests in. The investor — a private equity or venture capital firm — plans to own shares for many years, without much opportunity to sell them. Because it will be locked in for so long, it will want to do careful due diligence to understand the business and get to know the management team. It will also want some governance rights: It might want a seat on the board of directors so it can supervise its long-term, illiquid investment. And because private companies are often young and immature, without the professional management and stable business of public companies, that board seat, and the relationship generally, will give the investor the chance to guide and advise the company. The investor won’t just give the company money; it will give it mentorship and connections and wisdom.
Meanwhile, the company more or less gets to decide who can buy its shares: Most private-company stock is bought directly from the company; secondary markets are small and illiquid, and anyway the company can put transfer restrictions on its stock so it can’t be traded. So the company, too, will be looking for a good partner, someone who understands its business and can help it grow and who will be a helpful board member. Investors will compete on their ability to give companies mentorship and connections and wisdom, as well as money.
The traditional way for public capital markets to work is that an investor just decides what company it likes and buys its stock. The investor — a hedge fund or mutual fund — might plan to hold the stock for days, or for years, but either way it generally can sell whenever it wants to, so buying the stock is not an irreversible decision. The investor might do a little due diligence, or a lot, but either way it won’t place too many due diligence demands on the company: It will read the company’s public filings, maybe ask a few follow-up questions, perhaps meet with investor relations or the chief executive officer, but it will not expect the company’s management team to stop work for a week just to answer the investor’s questions, and if it does the management team will say no. In rare cases the investor (generally an activist hedge fund) will ask for a board seat, but most investors won’t,
and if they do the company will usually be skeptical about giving it to them. The company has professional managers and is already executing on its business; it would find it annoying and strange if an investor came along and tried to mentor it.
Meanwhile the company often won’t even notice when a new investor buys a big chunk of stock. You can just buy stock on the stock exchange without telling the company; the company has no say in it. Investors compete to invest in a company only in the sense that whoever pays the highest price gets the stock.
These differences are not absolute. Sometimes public companies will want to raise a lot of cash from private-type investors (private equity funds, strategic partners), and there will be a long and invasive due diligence process. Sometimes public companies will want mentorship and wisdom from an investor, and will try to get that investor to join the board.
And, as I keep saying, private markets are the new public markets: Private companies are bigger and more mature and more valuable and more famous and more liquid than they used to be, all of which should put pressure on the traditional private-market approach of diligence and board seats. If you run a $40 billion private company and you want to raise a billion dollars, and the investors you call ask for weeks of meetings with managers and customers, extensive financial reviews, and board seats, you might just say no. "We’re a big famous company and we are what we are," you might say; "if you need to do a lot of diligence to understand us, then you’re out. And we know what we’re doing; if you need to sit on our board to tell us how to do our jobs, then you're out."
This creates an opportunity for public-type investors to do public-style deals with private companies: If you skip the extensive diligence and governance demands, your money will be more appealing to a lot of big in-demand startups than traditional venture funding will be, so you will get in on good deals. And because you get good deals, and because you get them quickly, and because you do not spend a lot of time or money or effort on diligence and monitoring, you can pay higher valuations than the traditional venture investors who make a lot of work for themselves and their portfolio companies.
And so there has been a rise of "crossover," public-type investors buying stakes in big unicorn startups at high valuations without demanding a lot of the traditional trappings of venture investments, and a parallel rise of venture capitalists complaining about this trend.
But here’s a good post from Everett Randle at Founders Fund about Tiger Global, "a tech-focused ‘crossover’ that has dominated media headlines & VC gossip circles for the last 12 months due to its record-breaking deal pace & aggressive style." One point that Randle makes is that Tiger Global can accept lower returns because it deploys capital faster: If you raise a billion dollars and put it all into profitable investments right away, you will make more money than if you put it in a bank account and spend years thinking about which investments to put it into. (This is a public-market approach: Public funds are typically fully invested; venture capital funds typically deploy investor capital over time.)
But another point he makes is that Tiger Global just doesn’t care about a lot of the stuff that most VCs care about, and that a lot of startups probably find Tiger Global’s approach a relief:
Herein lies the second outdated (and false) norm/narrative that Tiger can exploit — the core pitch of most venture/growth products is built around the various areas of value-add that the fund will provide a startup, when in practice the funds provide little-to-no actual value. …
For many Founders, I also think the feature set [of Tiger Global] represents a "better" capital product relative to the norm, because it lacks the potential downside that comes from a new highly-involved investor who ends up being more of a drag than a help, or even worse ends up being actively malignant to the board and business.
If you are an 18-year-old starting a company in a dorm room, having a famous venture capitalist sitting on your board and helping you figure out how to run a company is probably a good idea. If you are the CEO of a multibillion-dollar company that happens to be private, you probably feel good about yourself and have the board you want; you just want money. A public investor knows how to just give it to you.
Last week I made fun of boutique investment bank Moelis & Co. for giving its junior employees a $10,000 special bonus "that the firm is encouraging to be used on improving mental health." I wrote:
What does it mean to spend $2,500 "on improving mental health"? Pay for therapy sessions? Buy drugs? Pay your rent for a month so you can quit to look for a less demanding job?
You sort of get what they’re going for; Moelis is looking its young bankers in the eye and putting its hand on their shoulder and saying "we know you are sad, here’s some money, take care of yourself, okay?" But the actual thing doesn’t make any sense.
Meanwhile boutique investment bank Houlihan Lokey is giving its junior bankers money to spend on mental health in a more direct way:
Houlihan Lokey Inc. will offer some workers an all-expenses paid vacation as it seeks to lighten the load for its workers amid a surge in mergers and acquisitions.
"Our team is going to celebrate our achievements with a global getaway," the firm said in a memo to staff seen by Bloomberg, which contained a link to some of the available trips they could opt to take. "No not all together (after all there is still a pandemic), so whether you choose a secluded beach or a ski adventure or a culinary experience, the choice is yours."
First of all, yes, nice, this is the right basic idea; it combines the idea of giving people money with the idea of forcing them to spend it on self-care and getting away from the office. Giving people $10,000 runs the risk that they’ll pay down their student loans and keep working until 3 a.m. every night until they explode; giving them a free vacation increases the chances that they’ll take a vacation. "The boutique investment bank will also offer analysts in the U.S. a one-time $10,000 bonus," which also helps.
Second, though, these are like … pre-selected package vacations? (Litquidity has the memo; it says "Click on the link of available trips to pick the package that speaks to you.") Ew, no. The classy move here is to say "take yourself a nice vacation and put it on the corporate credit card."
And then everyone takes whatever vacation they want, and they are much happier than they are with the firm-selected package deals. Ideally you don’t even specify a price limit and assume your bankers can figure it out. Some people will subtly compete to spend as little as possible of the firm’s money, and other people will subtly compete to spend as much as possible of the firm’s money without getting fired, and realistically the winners of both of those competitions are going to go far in banking. Extreme frugality and sensitivity, and extreme lavishness and boundary-pushing, can both work well; what you don’t want is mild timidity.
Third, imagine reading this memo, your stomach dropping at "Our team is going to celebrate our achievements with a global getaway," and then the relief at "no not all together." Surely there are no more terrifying words in the English language than "our team is going to celebrate our achievements with a global getaway," but in fact this is fine and actually nice! Just as like, comedy writing, this memo is nice work.
Overpriced, the first high-end fashion brand where the value is held in the NFT and not the garment, is pleased to announce that the companies first NFT powered clothing piece just sold for a record 26,000 USD on Blockparty.co, breaking the world record for the most expensive hoodie ever sold at a primary sale.
The One-of-one Hoodie features Overpriced’s patent-pending scannable V-codes that enable viewers to wear, authenticate, and show off their unique NFT in public via a pop up image link on any smartphone. If at any point the Hoodie is lost, stolen, damaged, or sold, the V-codes can be invalidated and a new hoodie will be shipped to the new owner’s address of choice, thus becoming the new authentic piece.
There is a picture of the hoodie, which … I guess looks like it cost $26,000, in that it is garishly ugly and has a swear word printed on it. The pitch email I got says that "the value is held in the NFT, not the garment," and "observers can scan the garment to display the NFT, see how much the hoodie cost, and view the ownership chain of the garment." I suppose you could just sell a non-NFT hoodie for $26,000 and leave the price tag on, but this way you get to show off how much you spent on your sweatshirt using the immutable code of the blockchain.
I make fun of non-fungible tokens a lot, but to be fair most people who create non-fungible tokens and sell them for piles of money are also making fun of them. Like, NFTs are mostly a joke, and the joke is always "I can’t believe anyone is buying this thing," and the people who buy the thing are generally in on the joke. "Ahahaha, look how much money I have, this is ridiculous," is their side of the joke. Here’s a story about a sale of NFTs at Sotheby’s that ended yesterday:
Another work, "The Pixel," sold for $1.4 million and elicited bids from many top NFT art collectors in part because its medium-gray monochrome represents a single pixel, the building block of digital imagery. The competition winnowed to three bidders who spent more than an hour and a half dueling it out in small increments—lobbing some bids as low as $50—before before crypto-art collector Eric Young won the work. At one point, the artist acknowledged the protracted match by tweeting images of snails and calling it a "pixel scale bidding war."
Buying one gray pixel for $1.4 million is of course much more of a flex (and much funnier) than buying one ugly hoodie for $26,000; no one can see you wearing the pixel and scan a code to find out how much you spent on it, but the people who matter will know. Or they won’t, I don’t know, who cares, you’ll be laughing to yourself, with the pile of money you have left over after buying a bunch of NFTs.
Also if you look at the actual bidding history for the pixel, it is all, like, funny numbers. The final bid was $1,355,555, which is not particularly funny, but is still odd, for a Sotheby’s auction; usually they move in rounder increments. One earlier bid was for $1,337,420.69, a concatenation of all the internet’sjokenumbers. The point of buying an NFT is not just to prove that you can spend a large amount of money on absolute nonsense; you should also, ideally, prove that you can spend a large and funny amount of money on nonsense. You need to have a sense of humor and sprezzatura about it; you need to throw around your pile of money with a wink.
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I think it would be *very* hard forshort sellers to put in orders; how could they argue that they had a locate to borrow the stock? I suppose you could imagine a market maker going short in the opening auction, but why?
See page 80 of its prospectus. (The relevant numbers are Class A plus Class B shares of common stock "issued and outstanding, pro forma.")
Apex raised $350 million in its initial public offering and now has about $351.9 million in its trust (see page 240 of the draft merger proxy). Alongside the SPAC, there is a committed $140 million PIPE (private investment in public equity) frominstitutional investors, for a total of about $492 million of proceeds from the deal. Of that, $262 million will go to cash consideration for existing AvePoint shareholders; the remainder will go to the combined company’s balance sheet. My model of SPACs is that the existing company is just selling stock to the SPAC; on that model, AvePoint is selling 23 million shares to the SPAC shareholders and PIPE investors, and AvePoint’s existing shareholders are selling 26 million more shares to them, for a total of $492 million in cash. (Though they are also giving some shares to the SPAC’s sponsors, roughly for free.) See pages xvii and xviii of the merger proxy for a breakdown of the cap table.
Not really; what is your alternative? Wait until after the merger, and plan to buy back stock later? You probably think your company is great and the stock will only go up from here, so better to buy it back at $11.15 now than at $15 later. The issuance at $10 is a sunk cost at this point, even though it hasn’t happened yet; if you think it will trade up from $11.15 you might as well buy it now.
In part *because* getting inside information as a board member might restrict their ability to trade: Liquidity is generally a better risk management tool than governance.
The bad news is that, while private-company liquidity is often better than it used to be, it isn’t always great. You *are* still locking money up in an illiquid investment without much diligence or control. In many cases you are sort of assuming that other, earlier investors kicked the tires and have control and will push the company to go public eventually.
When I was a junior lawyer at a very lucrative law firm, the standard move, during or after a particularly difficult deal, was for the partner to say to the associate "take your significant other out to a nice dinner and put it on the firm’s card." After sending, like, a $4 million bill for merger advice, this was a rounding error for the firm’s finances, but it was a nice, grown-up, gesture.
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