Adam Torres and Kristi Marvin discuss the IPO market.
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Show Notes:
Why aren’t companies going public? And what are the solutions to that? In this episode, Adam Torres and Kristi Marvin, Founder & CEO at SPACInsider.com and IPOInsider.com, explore the current and future of the IPO market.
About SPACInsider.com
SPACInsider’s reports, research and analysts are frequently cited by top-tier media organizations for their expertise in the SPAC asset class.SPACInsider.com is focused on the Special Purpose Acquisition Company product (SPACs). The website is devoted to covering the latest news, analysis and data covering the SPAC asset class.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres, and if you’d like to apply to be a guest in the show, just head on over to missionmatters. com and click on Be Our Guest to Apply. All right, so today, Christy Marvin is our guest, and she’s a founder and CEO over at SPACinsider.
com and IPOinsider. com. Christy, welcome to the show. Thanks, Adam. Glad to be here. All right. So great topic today. The future of the IPO market, both traditional IPOs and SPACs. So excited to get into this topic with you and just to get us, Oh, and by the way, you’re going to the SPAC conference coming up.
Is that correct? As well? I am. Yeah. Looking forward to it. Are these conferences fun? Give me the lowdown. Come on. I’m they are fun. It’s always nice to see, you know, everybody in person, especially after the past couple of years with the pandemic. Yeah, the conferences now and being in person and having that in person feel completely different.
, I know I’m not holding you to this because I know how conferences are and I know panel speaking topics, things change, but, you know, keeping it high level. What are some of the things that, I know you’re a panelist or speaker there as well. What are some of the things that you hope to cover?
Yeah, you know, it’s funny. The past couple years, I think everybody’s pretty much dissected. You know, the pandemic and the capital markets during that time period. I’m very much looking forward to sort of looking towards the future. And you know, just seeing what people can sort of anticipate happens next.
And you, I mean, between your sites, obviously you have SPAC Insider, you also have IPO Insider. So you’re covering really anything to do with, you know, IPOs in general or going public. So I mean, with fewer. Companies going public I mean, and more remaining private, like, like, and give us an overview of what you’re seeing, because you live this day in and day out.
Yeah, you know, it’s funny. seen a number of articles recently kind of saying the same thing, and I think everybody’s sort of in agreement. The IPO market for the past few years has been significantly depressed, right? And it’s actually getting exacerbated, too, by the private markets, which have only been increasing in size.
That sort of started, let’s call it, maybe 20 years ago, but since the pandemic it’s gotten much, much worse, right? And with so much capital sort of sloshing around in the private markets, companies don’t necessarily need to go public anymore. And, you know, couple that with, at the same time, The banks that underwrite IPOs have increasingly been focusing on the much larger, later stage, mature companies, which allows them to capture both, you know, obviously bigger fees, right?
So they’re sort of self selecting to the later stage companies, but it also exposes them to less litigation risk. You know, so what does that mean for companies, let’s say, in the sub middle tier? 1 billion in size. They’re finding it extremely difficult to go public, right? They can’t get attention to banks.
And we have a shrinking pool of companies for investors to actually invest in, in public markets. But it’s been challenging. Right. And you know, if we look at these, let’s call it large late stage companies that do go public, you know, Part of the problem, too, is that all of the growth has already happened while they were private, right?
Yeah. Yeah. only the private company investors get to enjoy those returns, right? So, like, by way of example, if we look at Tesla and Airbnb, which, you know, both began at the same time in the late 2000s. Tesla went public relatively early in 2010, whereas Airbnb waited a much longer time. They went public in late 2020.
Right. But if you were a public investor of Tesla in 2010, you got to enjoy all of that growth. In the company, and that was reflected in the public stock for Airbnb. Only private investors were able to capture that growth when it finally went public. So, you know, for public investors, the likelihood of Airbnb doubling or tripling in price is much less likely now, right?
So, which would you have rather invested in? You know, an earlier stage, maybe a riskier investment, right, in Tesla or, A later stage one at Airbnb. I mean, you can, there are pluses and minuses to both, but you know, there still is a real need for companies to be able to go public earlier. Yeah. and circling back to something you said, I mean which is, you know, there’s just more access to private funds than otherwise.
Like, it’s almost like, why would some companies, take that public scrutiny, so to speak, if they didn’t have to? I don’t know if scrutiny is the right word, but, you know, all of the things that come with going public, if they didn’t have to and they could still accomplish their growth goals, right?
Like, if they could get it funded, where in the past, maybe they had to. Like, it wasn’t a choice. Like, this is how we grow, right? Right, right. Well, there’s two things there. You’re right. Being a public company is far more costly right now. It comes with you’re right. Scrutiny is sort of a funny word, but I don’t, I don’t, and I don’t mean any negative connotation to that.
I just mean whatever words should be there. Yeah. No, I, I totally agree with you. It’s, it’s sort of a loaded word, but I think the difference is, is if we look back to the decade of the early 2000s versus now now we have social media platforms. We’ve got, everybody’s a critic. Everybody’s got an opinion.
Everything is under, like, just a fire hose of information. Yeah. For companies that scrutiny that spotlight is so intense that And it’s very different from the early 2000s that wasn’t around back then, right? So yeah even the pressure of quarterly earnings is so intense right now with like such heavy media scrutiny that Public companies don’t want to do it.
Like i’ve often sort of argued, you know Maybe we should go to only doing earnings twice a year Right because it’s so difficult. But the other problem too is you know, conversely for founders, if you think about it, if you’re founding a company, you actually want to go public earlier because if you stay private and you need to continually raise money in a private market, you’re getting diluted down.
Right. So by the time you do actually finally go public you know, your ownership in the company is so small. Is that really fair? Right. Like at that point, it’s just a VC owned company. it’s challenging. It’s challenging. okay. So that’s on one side of the coin, let’s just say from the company’s perspective, from the investor’s perspective, as you mentioned, like getting it basically after the company is much larger, As you mentioned, some of the gains maybe have been have already been had for some of those that early growth that was going to happen anyway in the market.
And now they’re getting it when they’re much a later stage company so maybe some of that, you know, is off in terms of what they can potentially earn. Like are there any solutions like on this, like not saying there’s a, you know, magic one but like what do you see as some of the solutions or some of the components that may change some of these things or move the needle in either way.
Yeah, well, it’s interesting. The SEC had a new rule proposal for specs. I’m not sure if dealers just follow it that closely, but in my mind, it was a real lost opportunity. And just sort of simplify the topic. It had to do with projections, right? Which specs because of their mechanism of taking your company public has always allowed companies to use projections, right?
Which makes it much easier if you’re. An earlier stage company rather than something that is later stage and traditional IPOs while they’re allowed to use project projections don’t and what would have been better is if the SEC changed a rule to allow, I shouldn’t say allow, that’s not the right word, if the SEC Easier for traditional ideas to use projections as well.
Right? Like, that would have been a far more democratic process, right? Because as it is right now with the traditional IPO, even though the traditional IPO doesn’t actually use projections, they do kind of right. But. What happens is, is the analyst at the bank, right, talks to the company and then puts together their model based on you know, what we said and only shares those, those models with their favorite clients, right?
So, you know, your typical small mom and pop investor isn’t going to have access to those projections, whereas with SPAC they did, right? So what we would have preferred to see is a change that made level playing field where it was sort of. Like to like, right? IPOs to specs both being able to use projections in the same way, right?
Like that might have made things a little bit easier for companies. Because it is right now if you’re a small company, as we sort of mentioned previously, it’s. The banks are going to kind of ignore them, right? But also they don’t have let’s call it the history of financials that an Airbnb that has been around for 12 years and finally gets around to going public would have.
Yeah, makes sense from the, bank’s point of view, because they, you know, they want, their risk off situation too. So I get it. it’s interesting how all of this is unfolding. So jumping around just slightly here. The SPAC market in general. Let’s talk a little bit more about that.
So, I mean, you know, a couple years ago, however many this was, it was, you know, on fire. You hear this is all you hear on the headlines for quite some time. Seems like everybody was doing something, or at least the media made it seem that way. You know how we can be sometimes, right? What’s going on in the SPAC market right now?
Like, what are you seeing overall? Yeah, we’re still seeing, you know, very few deals in both specs and traditional IPOs. You were right, like 2020, 2021, very, very different time period. The SPAC market including the IPO market just got way overheated during the pandemic, and in both asset classes, you, saw some poor results, right?
When the macro economic environment sort of changed, right? And you saw Increased interest rates which really penalized quite a few of the more growth oriented companies. But, you know, the SPAC vehicle is still a really good option for companies that aren’t a good fit for the traditional IPO, right?
Like, the deals that didn’t work make a really good headline and I get why the media wants to use them. But you know, of course, often what’s often ignored there are a lot of really good successes that came about during that time period to you just don’t hear about them.
All right. So the spec vehicle is still a good option for companies. And that often ignored space that we talked about earlier, the sub one billion, right? And the good thing is about the fact is their structure tends to evolve, right? Whereas the traditional IPO product is, for the most part, pretty static, right?
It’s the facts, secret weapon that it can change its terms. So, you know, if the economic conditions change or the investment climate changes, the fact structure can change as well to meet those new demand in the past. Okay. We’ve seen some major evolutions in the SPAC products, right that have improved the product.
We’re actually overdue for another sort of, let’s call it, major evolution. However, the regulatory climate right now over the past couple of years has shown that the SEC is not necessarily open to innovation, you know, maybe that changes in the future if we see less and less companies sort of accessing the public markets, be the IPO product it may, you know, you know, if necessity is the mother of all invention, you know, maybe, maybe that sort of prompts them to Get some new innovation in these IPO vehicles.
Yeah, and especially when you think about like access for the investor side of it, right? And diversifying their, exposure and what they’re actually having access to as investments. if that part of the equation is actually in, these conversations from the governmental side of things, right?
Yeah. Well, you know, it’s, it’s funny, you know, there’s a lot of talk about, you know, private markets are the new public markets. But, you know, what the problem with that is, is very few individuals will qualify or be able to invest in private deals. Right. And even if they do, right, because you have that qualified institutional buyer even if they do, most likely they don’t have access to the best deals.
Right. The best deals are always going to go to like the top VCs, the Sequoias, the benchmarks. Right. And so it’s, you know, Yeah, it’s a world in the future. You know, do we want to have a world where only a handful of VCs are enjoying returns and everybody else gets, you know, whatever’s left over. Yeah, pretty much.
I get it. No, and I get it with you. And when we talk about this, hey, we’re talking about the future of, so we have a little bit of leeway here, you know? what excites you right now about the market overall? Because you’re in this space day in and day out. Like, what excites you?
Like, what excites you that you’re following? Well, it’s interesting if we just SPAC market, They tend to look at earlier stage growth companies, and they tend to focus a lot on, let’s call it companies of the future, which is why I always really like the space, any given day, we can see a deal announced with an eVTOL company, right, which is, you know, the flying you know, car companies, or, you know, the next day, it could be some healthcare company, you know, or biotech company focused on something to cure cancer, you know, so it’s really interesting.
And, you know, I hope to see more of that, especially with AI, right? Like, obviously that’s going to be a popular focus going forward. But, honestly, like, as far as what gets me excited is finally, you know, Seeing some life come back to the capital markets. I mean, the past years have been candidly pretty brutal for everybody on the street, right?
trading has been good, but dealmaking IPOs, it’s been tough, right? And so you’re finally starting to see some signs of life there, and that is always exciting to see. Awesome. Well, well, Christy, I just have to say thank you for coming on the show today and make it some time for us to talk about this upcoming SPAC conference.
Pretty excited about it. I know that DealFlow and put on great events. I’ve covered quite a few of them and they do great work always and bring on great speakers. So I’m sure that’s going to be an amazing event. That being said if somebody wants to to follow your work and follow your companies.
I mean, what’s the best way for them to do that? Sure. You know, they can visit us at SPACinsider. com, which is how it sounds SPACinsider. com or IPOinsider. com. And we’ll, be sure to put those links in the show notes for everybody listening, just so you know, so you can just click on the links and head right on over.
And speaking of the audience, if this is your first time with mission matters this is a daily show each and every day. We’re bringing you new episodes, new content. New thought leaders, new ideas. If that sounds interesting to you, we encourage you hit that subscribe button. Again, this is a daily show each and every day we’re releasing episodes.
So make sure you hit that subscribe button so you don’t miss a thing. And Christy, again, thank you so much for coming on. Thank you, Adam.