Dakin Campbell is the reporter you want to talk to when you want to understand Wall Street. Before moving to Insider, he covered finance for more than nine years at Bloomberg News, where he covered the industry as a reporter for more than four years.
(Disclaimer: Campbell and I were colleagues at Insider for two years before I moved to Fortune.)
Earlier in his career, Campbell spent four years in San Francisco reporting for Bloomberg Finance and Banking. Asked by Insider in 2019 to cover the debacle of WeWork’s IPO, a “unicorn” office rental company that was overvalued in private markets and undervalued in public markets, Campbell said he understood the mindset of both Silicon Valley and bankers in New York.
“I had a very interesting experience looking at banking through the eyes of my sources in the West Coast,” he told me. “As you might expect, they see the world differently than East Coast investment bankers.”
His new book, Walking in public“Why don’t you do it differently?” It’s a coastal rivalry between Silicon Valley youths. And the Wall Street guys said, “Well, that’s how it’s done. We can’t do it any other way. (My words, not his). Steve Jobs begins with an amazing story from Campbell, who basically did his own research on how West Coast people like him were ripped off by bankers in the East.
The story of the startup is something every startup founder can learn from, Campbell told me.
The following interview has been slightly edited and expanded for clarity.
I’ve been reading about IPOs for a long time in my working life, and your book is one I always look for: The Secret Story of How Wall Street and Silicon Valley Created the Modern Process of IPOs—Taking a Company Public. Tell me a little bit about how you were drawn to this story, especially the story from the book, when Steve Jobs puts his finger on something that has troubled tech executives for decades.
And when I started as a journalist, there was a financial crisis. And I grew in my career by being so willing to dive into the corner of Wall Street to explain things to people who didn’t understand me. Back then it was a mortgage bond. Now, it’s IPOs.
Over the past few years, around 2018 and 2019, the derailment of WeWork’s IPO has made me think that there is a lot on the surface that I don’t really understand. After some of my coverage for Insider, I was interested in going down the rabbit hole of how that deal fell apart and how the IPO market worked, but I learned that the whole system was built one way. That didn’t help startups and tech entrepreneurs.
I soon learned that the IPO market has a lot of history, and things weren’t always done this way. I’ve talked to people who have been involved with some of the biggest IPOs of the past 100 years, including Ford Motor Company and Apple Computer, and it seems that Steve Jobs saw right through the conflict of interest that came to represent the IPO market. For many people. I mean, Steve Jobs was sitting in a building in San Francisco’s financial district, meeting with bankers from Morgan Stanley and Humbrecht & Quist, which were the biggest investment banks running tech IPOs at the time. Bank. Morgan Stanley bankers tell Steve Jobs how they plan to price Apple stock, talking to several investors and thinking it could sell for around $18. And Steve Jobs listens, and he says, “But wait, I was talking to people too. And they tell me I can pay $20 to $24 or $26.
And Morgan Stanley’s investment bankers are quiet. And then they say, “Well, we think $18 is a good price.”
And he says, “Okay, wait a second, if you sell my shares of Apple to your customers for $18, are they going to be very happy the next day when you turn around and sell them to them for $24?” $26 or $28? And in that moment, Steve Jobs, who is clearly a brilliant designer and a brilliant business mind around hardware technology, saw right through the Wall Street system in a way that most people didn’t. I was amazed that he was the guy we were giving all this credit for because he was smart in the technology field, and lo and behold, he saw through the investment banking playbook in 1980. And 40 years later, that playbook remains the same. That’s what the people featured in my book are trying to change.
In the late 70’s/late 80’s, Steve Jobs hits on the downsides of the IPO process, but as the book makes clear, it takes 40 years for the next leap forward. Why did it take so long for someone to follow up on Steve Jobs?
In the year Between 1980, when Apple went public, and 2018, when Spotify made its first live playlist, there have obviously been many boom and bust cycles in tech stocks. And so “The First Day Appears.” [when a stock increases in trading to a value far above its listing price] That worried everyone in the late 1990s, but the market has since corrected itself. [with the dotcom bubble bursting]. The people who lost a lot of money in the NASDAQ crash didn’t think of it in those terms, but I think if the early growth of the Internet continued, they might have seen the reaction we got later.
But there haven’t been any tech IPOs for a while, and when Google went public in 2004, they really wanted to do something different. And so they designed the “Holland Auction,” and everyone thought that Google would be such an ominous, impending agent of change, but for various reasons, it didn’t happen. Most people didn’t see Google’s IPO or auction as a success, and that kind of squashed any broader plans to revamp the IPO process.
But then you had the financial crisis, and from there we started to see tech prices go up again, we started to see first-day pops become a regular occurrence.
You mentioned that reporting on WeWork got you into this topic and it occurs to me, this is the opposite of the first date pop. I remember when they took their paper public it was a big day on Wall Street that had been waiting for years to see the financials and the Street didn’t like what it saw and had to redo it again and again. And finally, it went public with a very low estimate. Do you agree with this?
With the details surrounding the company and its founder, I think this case is a bit different. You’ll start seeing software companies double their stock prices on the first day of the same year. But it’s true that WeWork was part of a period when a lot of people were looking at the IPO market and the IPO system was broken.
But it’s important for WeWork to be private for a long time and to raise more money because the innovations I write about in my book, if the private markets grow this way – the large amount of capital available to these startups has allowed them to stay away from the public markets for many years than ever before.
The inventions you mention are a big part of your book. Let’s start with Google’s Dutch auction. What is that anyway?
Therefore, the so-called Dutch auction is based on the way flowers are sold in the Netherlands, if you have heard about the tulip mania several centuries ago. [one of the most famous examples of financial speculation in history], the Dutch have been selling flowers for centuries. The way to do this is to start with a high price, and lower the price until all the flowers are sold. Google plans to do something similar with its shares when it goes public.
What about the Spotify direct list? That invention came after Google’s IPO and plays the biggest part of your book.
So, simply this is listing your shares directly on the stock exchange. In traditional IPOs, a company issues new shares and trades the new shares to investors, but in a direct listing, the company does not issue new shares, they only take back the shares it has already sold to investors. As a private company and put those on the exchange. Spotify was able to do that because they didn’t need any money, which is the traditional reason a company goes public. Because its private markets grew so big, Spotify was able to raise a ton of money a few years before it went public, and Peloton’s then-CFO, Barry McCarthy, was looking to go. He wanted to find a way to do that without going public, issuing new shares.
Many of Spotify’s employees and investors were looking for a way out, but Spotify didn’t need more capital, so Barry was actually trying to find a way to do that.
You’ve talked a lot about how the tech world’s IPO process is broken and what the innovations are meant to fix. Without crowning you an IPO expert, did you fix what went wrong? Or where is the process now?
So there are some arguments on this issue. Since then there have only been 13 or 14 live listings including Spotify. That’s compared to hundreds of IPOs in the same period. My argument in my book, and I’ve tested it against many people who believe this is good, is that by giving startup executives the option to go with a direct listing, they can get more offers from their investment banks. Most of the IPOs that have taken place since Spotify have looked very different than before, involving more changes and flexible terms for startups than in the past. So even though many companies don’t follow a direct listing, those that do give them permission to get back at their banks and investors.
That essentially gave an advantage to all of Spotify’s startup brethren considering IPOs.
Yes exactly. And while the startups ultimately chose to stick with a traditional IPO, that turned out to be more structured in their favor than it should have been.
At the end of the book, you briefly touch on the SPAC epidemic, which has taken another round since your book was published. Do you see SPACs as another form of leveraged innovation?
I see them as part of that continuum. Well-known venture capitalist Bill Gurley, who I talk about a bit in the book, continued to beat the drum for change after Barry McCarthy and Spotify. In the year In the summer of 2020, SPACs are a legal way for tech companies to go public, as the competition in the SPAC market at the time was intense, as startups were able to extract discounts and cheap fees from their investment banks and investors.
Now, the upheaval and upheaval in SPACs that we’ve seen suggests that maybe they’re not the solution that people think they are. In my book, there are several examples of tech companies that didn’t sell to SPACs. Slack was previously approached by Chamath Palihapitiya to do a SPAC, and Airbnb was approached by Bill Ackman to do a SPAC, and both turned down those opportunities.
That leads me to one big thing from most people I’ve talked to: If you’re a startup executive, you have a lot more power in the IPO process than you think. It’s your company, and it’s your idea, and a lot of people go into the IPO process and hand it off to people they think are experts, when in fact, they can be more involved and like and shape the process. For their benefit.
right. If you’re at the IPO stage, you have a valuable company, and you have a lot more leverage, thanks to Barry McCarthy and Spy and Steve Jobs and Apple and all the people who came before. I mean, I think, even if Steve Jobs was a first-day pop-up, I was pretty sure Apple was going to be good. But he knew something that other technology leaders who came after him should know.
that’s right. He took an interest in the process in a way that many tech executives don’t. Many, many CEOs or founders are more than happy to hand the process over to the CFO or the investment bankers or other advisors they hire. What Steve Jobs or Daniel Ek [Spotify’s cofounder and CEO]Working with Barry McCarthy tells you that you are involved and interested in the process, and there will be things to learn and things of value.
“We can go public the way people always have, or we can work with our banks to come up with something that suits our needs.“
Well, Dakin, thanks for your time and congratulations on your book.