May 11, 2020

Introducing The S-1 Club

Introducing The S-1 Club.

Artwork by 
Back to all

You can listen to an audio version of The Generalist on Spotify or Apple Podcasts.

If there's an art to a roadshow, Bill Gates didn't have it.

In the lead up to Microsoft's 1986 IPO, the man described as a "gawky, washed out-blond" and "something of a ladies' man" in a Fortune profile written at the time had reached the end of his rope. Sick of the coaching received from the company's attorneys who told him to stick to the information included in the prospectus, he finally snapped.

"With my mouth taped, what's the point of giving a speech?"

Gates's frustration wouldn't matter of course, with the company debuting at $21 a share before shooting up to $35.50 over opening day. Within a year, the company would be the largest software business in the world by sales.

That context and the benefit of hindsight makes Gates's frustration a piece of roadshow history, a curio to place alongside other vignettes that occurred on the (occasionally perilous) path to IPO. A few examples below.

  • Google. The search giant's listing process was littered with unorthodox decisions and strange events. As part of selecting which bank would manage the offering, Larry Page and Sergey Brin asked each institution to fill out a questionnaire. Unknown to the bankers, each document had slightly different questions, ensuring the company would be able to identify a culprit should a leak take place. The firm also chose to employ a "Dutch auction" methodology to price the stock, meaning that the cost of shares was determined by blind bids placed online. Finally, on the day of the IPO, Brin didn't show up, considering a red-eye too unpalatable.
  • WeWork. In its delusion, the House that Neumann built was historic. Stoked into a lather by the WeWork founder, Goldman Sachs proposed an offering price of $96B, while JPM suggested $63B. The company would, of course, fail to ring the bell. Its revised valuation of ~$8B represented one of the steepest declines in value for a business on the brink of a public bow.
  • Vonage. Once the "fastest-growing telephone company in the US," the VoIP firm hamstrung its offering by encouraging customers to buy stock in advance through a "direct shares" program, one of the first of its kind. While high-minded in theory, the plan hit a snag. Customers bought in at $17 a share, before hearing that their purchases had not been registered. After the stock sunk to $14 in the first day of trading, customers were subsequently told their purchases had gone through. A class-action suit followed with customers winning $800K in damages.
  • BATS. For a moment, alternative stock exchange BATS looked like it had hemorrhaged 99.75% of its value in a matter of seconds. Going public on its own platform, a glitch affected the prices quoted, including the company's own stock price. BATS was forced to nullify the day's trades, and having lost investor's trust, pull the IPO.

These are precisely the sort of stories The Generalist plans to dissect as part of a new series, developed in conjunction with Tom Guthrie of Onejob. Once a month, the S-1 Club will unpack a forthcoming IPO, curating diverse opinions on game-changing companies making their public debut.

It feels particularly fitting to begin with Pexip, a video-conferencing company seeking to unseat Zoom. The Norweigan firm is one of the first to host a digital roadshow, leveraging its own video technology to host investor conversations.

In that respect, the company is one of a small cadre willing to brave the bracing volatility of the current markets to ring the bell. In Europe — Pexip will list on the Oslo stock exchange — just 22 companies have gone public in 2020, raising a total of $1.2B. Last year over the same period, 38 businesses had taken the plunge for a total of $7.5B, while 2018 saw close to $20B raised in the same timeframe. A similar pattern is taking place in the US: only two listings occurred in April and just 22 over the year.

For all that uncertainty, Pexip appears well-poised to capitalize. Since lockdown forced many to work from home, the company has seen a 7x increase in usage, with more and more businesses joining Spotify, PayPal, and Amnesty International in choosing Pexip's privacy-oriented solution.

On the brink of becoming Scandinavia's largest software IPO on record, Pexip will hope that its historic moment maps more closely to Microsoft or Google, rather than Vonage.

Stay tuned for more analysis, next week.

The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.