Dakin Campbell is chief financial correspondent for Business Insider. He has been a journalist for more than 15 years and has previously reported on behalf of Bloomberg, Businessweek and Markets.
Below, Dakin shares 5 key takeaways from his new book, Going Public: How Silicon Valley Rebels Loosened Wall Street’s Grip on the IPO and Sparked a Revolution. Listen to the audio version – read by Dakin himself – in the Next Big Idea app.
1. Know your material.
For decades, Wall Street investment banks controlled the way private companies listed their stocks for the first time on a stock exchange — known as an IPO. The modern playbook requires banks to act as intermediaries between companies selling stocks and the investors buying them. Operating on both sides, the banks are inherently fractious, and there have been attempts to rewrite the rules in recent decades. It wasn’t until Spotify’s chief financial officer, a man named Barry McCarthy, found a way for Spotify to list its shares on an exchange without having to issue new shares, did tech startups finally gain the upper hand. McCarthy’s example was soon followed by other executives, such as Stewart Butterfield at Slack, Kim Jabal at Unity, and Prabir Adarkar at DoorDash. They have been supported not least by advisors such as venture capitalist Bill Gurley and IPO guru Lise Buyer. The story of how they defeated adversity and a system stacked against them contains universal truths.
A crucial foundation for this revolution came from Barry McCarthy, a lifelong student of financial markets. Twenty years earlier, McCarthy had been a budding executive at Netflix when he stuck a cassette tape in the dashboard of his Ford Explorer. McCarthy drove across country from Princeton, New Jersey, to Netflix’s headquarters and listened to an attorney explain the inner workings of the IPO process. The crash course was just one of many times McCarthy took an extra step to learn the mechanics of the market.
“The story of how they defeated adversity and a system stacked against them contains universal truths.”
His interest never waned, and when he became Spotify’s CFO, he had the curiosity and self-awareness to think of something new. In discussions with lawyers and bankers, McCarthy was often met with skepticism. Only through his deep knowledge of the subject was he able to face the doubters and stick to his plan. Spotify’s board of directors relied heavily on McCarthy’s expertise and eventually agreed to let him move forward. Without McCarthy’s complete mastery of the subject, Spotify would never have sparked the wave of innovation that followed.
2. Challenge conventional wisdom.
It can be difficult to criticize what’s currently popular, but it’s often just what’s needed to achieve a business breakthrough. As a research analyst on Wall Street in the 1990s, Lise Buyer gained a reputation for saying what other people dared not say. She was open about the prices paid for Silicon Valley startups. At one point, Buyer even refused to follow convention in setting price targets for tech companies because their unproven business models and boom-market psychology made it too difficult to predict. When the market crashed in the early 2000s, their caution showed.
Buyer joined Google, where she served as one of the lead architects of that company’s unconventional IPO, before founding her own firm to advise startups on going public. A few years ago, she helped a company called Unity Software redesign key parts of its IPO. Throughout her career, Buyer has often chosen to ignore the beaten path and instead follow her own path. That’s a big reason she’s helped rewire how companies approach financial markets.
3. Make your voice heard.
Speaking up in a meeting or speaking out publicly for something you believe in can feel risky. That didn’t stop Bill Gurley. Like McCarthy and Buyer, Gurley was frustrated with the traditional way of selling stocks to the public. But he wasn’t an executive and had no boardroom presence in Silicon Valley. What the venture capitalist had was a reputation as one of the most successful startup investors in the world, a Twitter following in the tens of thousands, and an open invitation to appear on cable TV business shows.
“Even if they didn’t choose to do so, executives have now had permission to ask their bankers about alternative options for listing stocks.”
Over an 18-month period, Gurley critiqued the traditional IPO process and almost single-handedly pushed the issue to the top of the agenda in Silicon Valley and Wall Street. As he further channeled those frustrations into a day-long symposium organized for startup founders and other venture capitalists, Gurley’s command of the narrative was almost complete. From then on, dozens of startups considering going public asked their investment bankers about the model Spotify had pioneered. Even if they didn’t choose to do so — only 13 companies have — executives have now had permission to ask their bankers about alternative ways of listing stocks. These conversations probably would not have happened without Gurley’s skillful use of his bullhorn.
4. Follow your plan.
In the face of doubters, sticking to your plan can be difficult. But that’s exactly what Kim Jabal, the former CFO of Unity Software, did when she put her own stamp on the IPO. A former Google employee and longtime tech executive in Silicon Valley, Jabal was a passionate believer in using data to make decisions.
When it came time to take Unity public, Jabal worked with their CEO and Lise Buyer to gather an additional set of data. One of the things she focused on was the process of issuing shares to certain types of investors. Conventional wisdom held that to create a market for the stock, companies had to give a percentage to those who would sell the next day. However, the data showed that it was difficult to see which investors will hold and which will sell. If the stock price soared on the first day of trading, investors who were selling would make a slight profit. Jabal decided to give away a much smaller amount to investors who she expected would sell her.
“Jabal was a passionate believer in using data to make decisions.”
The decision worried Jabal’s investment bankers, who urged her to give more to investors who could sell. She stuck to her beliefs and the company enjoyed a successful bid. If Jabal hadn’t pulled through, Unity wouldn’t have established a model that has since been used by numerous startups.
5. Know when to stop your experiment.
Many management experts suggest taking small risks to see if they work. But how do you know when to unplug an experiment that doesn’t work? Airbnb, the home sharing company, faced this choice in the summer of 2020. CFO, Dave Stephenson, had persuaded the board to move ahead with a deal similar to Spotify’s. The process would have made Airbnb the first company to conduct this type of listing on the Nasdaq and made Airbnb a pioneer in its own right. The company wouldn’t have raised any money – which would have been fine. Airbnb didn’t need it. But then the pandemic hit, travel dried up, and Airbnb lost money.
Stephenson, who is hands-on and unemotional, saw the reality and changed Airbnb’s plans. Instead, the company would conduct a traditional IPO. When it went public in December of that year, the transaction raised $3.5 billion and gave Airbnb the cash it needed to weather the pandemic. If the experiment looks like it could jeopardize your business, Airbnb’s history suggests it’s okay to end it.
To hear the audio read by author Dakin Campbell, download the Next Big Idea app today:
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