Read on Twitter
2) NOT INVESTMENT ADVICE
3) The SEC just announced that they'll allow companies to raise money through a "direct listing" on a stock exchange.
https://www.wsj.com/articles/sec-approves-nyses-plan-for-new-ipo-alternative-11608665152
Which might seen like... obvious? But as it turns out, it wasn't true before.
https://www.wsj.com/articles/sec-approves-nyses-plan-for-new-ipo-alternative-11608665152
Which might seen like... obvious? But as it turns out, it wasn't true before.
4) Companies could list on NYSE, but then they couldn't issue shares to sell on it and provide liquidity to buyers--not for a while.
OR they could IPO: sell some shares to a bank, and then list, and the bank can provide liquidity on NYSE.
OR they could IPO: sell some shares to a bank, and then list, and the bank can provide liquidity on NYSE.
5) And, of course, that bank isn't doing this for free; not when they have a monopoly on it.
It's been particularly extreme lately; AirBNB IPOed at around $50, and then traded at $130 on its first day of listing.
It's been particularly extreme lately; AirBNB IPOed at around $50, and then traded at $130 on its first day of listing.
6) Which begs a question: why do IPOs exist, and why are they so cheap?
Well, partially they exist because of regulation, and partially because companies want some security going into listing.
And partially they're cheap because companies are paying to lock in a price.
Well, partially they exist because of regulation, and partially because companies want some security going into listing.
And partially they're cheap because companies are paying to lock in a price.
7) But that doesn't mean they have to be *this* cheap.
Part of the problem is that, prior to listing, no one really knows for sure what the company is worth, and so there's a lot of uncertainty.
And in an uncertain market with a restricted set of buyers, they can bid cheap.
Part of the problem is that, prior to listing, no one really knows for sure what the company is worth, and so there's a lot of uncertainty.
And in an uncertain market with a restricted set of buyers, they can bid cheap.
8) So banks live off the confusion and make money buying into an IPO and selling on listing.
The 'oracle price' they're using is essentially an auction with only a few possible sellers; not a very efficient reference!
The 'oracle price' they're using is essentially an auction with only a few possible sellers; not a very efficient reference!
9) It's not the only way companies raise money.
(i) Sometimes they use a SPAC -- which gives more flexibility and more potential ultimate buyers than an IPO, though still not a ton.
(ii) Or, better yet, they can go to every venture fund in the world and negotiate a sale price!
(i) Sometimes they use a SPAC -- which gives more flexibility and more potential ultimate buyers than an IPO, though still not a ton.
(ii) Or, better yet, they can go to every venture fund in the world and negotiate a sale price!
10) The more open the access is, they more fair of a price they'll get, because the more robust the pricing mechanism.
(iii) They could try to find a way to let in *any* investor, no matter how big or small, and have an auction -- this is how some crypto IEOs work.
(iii) They could try to find a way to let in *any* investor, no matter how big or small, and have an auction -- this is how some crypto IEOs work.
11) (iv) Or, there could be an open and liquid orderbook--a market on an exchange; the world's most efficient pricing tool.
And that's what would probably get the company the fairest price.
That's close to what the SEC just allowed--though there are some restrictions.
And that's what would probably get the company the fairest price.
That's close to what the SEC just allowed--though there are some restrictions.
12) So how does this help Coinbase?
Well, remember AirBNB, which IPOd around $50?
The day before it listed on NASDAQ, it listed on FTX. And http://ftx.com/trade/ABNB/USD traded up to $95 prior to launch.
Now there wasn't enough liquidity on FTX for AirBNB to sell $3b, which it did.
Well, remember AirBNB, which IPOd around $50?
The day before it listed on NASDAQ, it listed on FTX. And http://ftx.com/trade/ABNB/USD traded up to $95 prior to launch.
Now there wasn't enough liquidity on FTX for AirBNB to sell $3b, which it did.
13) But if you're AirBNB, and you see your stock trading at $95 on FTX, maybe you ask for a higher IPO price than $50; or maybe you opt for a direct listing if you could get it.
Well, they didn't--they sold in the IPO.
But now think about Coinbase.
Well, they didn't--they sold in the IPO.
But now think about Coinbase.
14) Coinbase last raised at $8b, and rumor is that it might IPO around $20b.
This seems pretty defensible -- up 3x! $20b valuation! Or so their bank is telling them.
But a single negotiation is a shitty oracle. An orderbook is better.
https://ftx.com/trade/CBSE/USD is at $57b.
This seems pretty defensible -- up 3x! $20b valuation! Or so their bank is telling them.
But a single negotiation is a shitty oracle. An orderbook is better.
https://ftx.com/trade/CBSE/USD is at $57b.
15) So if you're Coinbase now, and your bank tries to bid $20b -- maybe you show them https://ftx.com/trade/CBSE/USD .
And say -- "hey look that's cool but we already see $57b bids elsewhere; guess you're gonna have to improve".
And if they can't improve, maybe they just list directly.
And say -- "hey look that's cool but we already see $57b bids elsewhere; guess you're gonna have to improve".
And if they can't improve, maybe they just list directly.
16) That's the power of orderbooks: they're the general purpose tool for people to each express their opinions on a value.
They're one of the world's best oracles, when used right.
And they say that maybe people will pay more for Coinbase than a single bank's bid.
They're one of the world's best oracles, when used right.
And they say that maybe people will pay more for Coinbase than a single bank's bid.
17) (h/t @ramnikarora for some of these thoughts!)
