Deep Dive
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We think we're a good company, and we think we can perform in the work we .
wanted to meet banks ahead of.
And hey, why do to go see all these investors? Can't we just to a thirty five million dollars po to four, five, four?
You can't time the market because it's .
clearly long process. The kind of person who over hypes under delivers under b and del.
how big does your IPO need to be? What is your market need to be proceed?
Did you guys have like a magic number in .
your head before you pricing discussions?
Initial public offerings or ipos are one of a few ways that startups can experience a liquidity event. And looking back on twenty twenty two and twenty twenty three, new stock market ideas fell to decade close with one hundred and eighty one and one hundred and fifty four IPO, respectively. For comparison, the all time record was established just the year prior in twenty twenty one at one thousand thirty five IP s. So as we had to twenty twenty four, with many people speculating, one of the IPO window will reopen.
We actually wanted to read, visit an important conversation with A C Z general partner, job jorn and jd mayaro around the open table IPO, which actually happened immediately following what was the worst financial crisis since the great brush, having LED open tables IPO a CEO in two thousand eight, as well as being on the board of multiple publicly st companies since jeff has had first hand experience in to the world of IOS. Meanwhile, jd mayoral is the former head managing director and head of equity capital markets. I think of america, that is time of big america.
Jd worked on numerous IPO, including open tables alongside than C E O. today. The pairs conversation from twenty seventeen actually feels as relevant as ever. Together they go behind the scenes with some toxic to really unravel.
The complexity is surrounding ipos, expLoring the decisions that can shape the fate of companies like the domain s upsetting a Price, the mysteries behind allocations and the elusive pop. And they even go into how boards and company employees should be involved throughout the entire process, and above all, leading into a surely unpredictable year. They were in on whether there really is such a thing as IPO time.
All right, I hope you enjoy this episode. Let's see, we're twenty twenty four taxus. As a reminder, the content here is for informational purposes only, should not be taken as legal, business tax or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any asic sensei fund.
Please note that asic scene and nympha ates may also maintain investments in the companies. Is discussed in this park cast. For more details, including a link to our investments, please see a extended outcome slash disclosure.
Everyone, welcome to the six ne podcast time sono. Today we're doing one of our war stories podcast where we have founders, makers and Operators share the story behind the story. Joining us for this episode, we have a six sense e general partner, jeff Jordan, who was president, pay pal at ebay before going to online restaurant reservation that works open table, where as a CEO, he oversaw the company going public.
We're going to talk about all that in this episode, focusing on everything from the relationship building involved on the road to IPO and the nuances of pricing and allocations to the broader market context and some concrete advice for entrepreneurs. And last but not least, we have special guest jd majority drinking this conversation. He is now S V P of corp. Dev t learning tree, but was formally managing director and head of equity capital markets at bank of .
the american mary linch jd was the delete banker, the capital markets expert from maryland on the open table, IPO key and h Harry wagners of Allen and company were the key two keys who basically helped execute deal in about the worst capital market situation like two thousand eight or or two thousand nine. A venture back technology firm had not gone public in a couple years. The concern was that the window w was closed, bricked over, and the only exit path for tech companies was going to be ma. From then on, we went ded up pricing at the nature of the worst financial crisis since great depression.
I used to talk about two hundred people, and the only IPO prior to open table in two thousand and nine was a company called meat Johnson, a very defensive company. The type of thing that should go out in two thousand and nine in consumer products they make.
like the flor wax, or something exactly .
very .
far from this weird thing called open, which is not even a product can .
physically correct. And you know, people tend to look at when IPO Prices, and you have to recognize that most companies take six to eight months to get there from our old meeting to kick off the process where the bankers in the management team begin the process of preparation or pricing was about eight months.
I have to ask really dumb question, why do you need a bang? great. Can just directly.
if actually one point jeff asked me early in the process, hey, why do we need to go see all these investors? Can't we just do a thirty five million hour IPO to four, five folks? I think the way to think about the IPO processes, you're not just doing the IPO. You have to take a two year view towards how do we get this to be a stable public company that can grow and achieve not only the company's goals, but the goals of the of the early investors demand over one prior time and often times, as this deal showed.
those goals are different. Interesting observation is going public does not create liquidity, all the insiders cannot trade when you go public well.
a standard expectation of the new public investors taking a chance on this new company is a hundred nine day lockup that is kind of a market standard. There are certainly exceptions to that. And we can talk about things like the IPO discounted sea.
But in order for somebody to take the risk of a newly public company, they expect certain things. Now there P. S, that have secondary shares, don't misunderstand, but the the early investors are walking up for hundred and eight days. There is a period of time when the right way to think about in this, your true monitise ation is really down the road.
And yeah and and so if when the hundred light up expires, all the insiders and all the management team run the the stock change and try to sell stock. All the third body all the owners will disappear to because if the insiders don't have any confidence in IT, then why should I own IT?
I mean, a little bit of a counter point though. Obviously, market conditions change. The company has gone public in like ten years. You have to get some liquidity out or you're founder who has to give up a little bit shares in the second day market in order to know loosen up .
a word word support of that. But if they try to get full liquidity on day one hundred eighty one, the stock Prices .
is going to be two.
We're talking about the technical of how does that stock get to market. There's another part of this, which is simply when do you, tim, the IPO? Fundamentally, we encourage people to don't think about the market conditions today.
Think about is this a good public business? Yeah and you have to answer that question first. For most companies, you never get time. The market.
you can't time the market because it's clearly long process. But then why do people talk so much about there being certain windows in which there is an ideal time, know that a window can open and shut. And this is on a global scale of ten years.
fifteen years at that. This was a case on the open table. I, P, O, to stand for business school.
Now, tight and information, new ventures class and about IT and and IT basically says, should open table go public? Now the analysis said there are windows in the ipos. Yeah, they kind of come and go.
And the best companies often open windows over, then previously closed to the best companies, whatever they want. The good companies typically want to a wait for totally. Investors are feeling good.
yeah. The mediocre and bad companies want to get out whenever they can. And what happens when the window opens? The early people to to go out typically performed very well as public company stocks.
And then as more time goes by, you get towards the end of the window, the companies that they are going out kind of rushing, I gotta get out, i'm going to miss IT typically are not the highest quality companies, and they take tend to under perform the market. One of the things that had go was okay. We think we're a good company. We think we can perform in the market. We wanted to meet bankers .
ahead of time .
and how we started about a year and half out our year half surgical with the bankers. We kind orchestrated one or two conversations but um before we did the formal bake off where you select your lead bank and i'll do respect the moral at the time they were, they were not the top of the pym ID in terms of jack bankers. So we because we're the only IPO, we had every bank, we got to know the people, the firm, and we put particular value in the capital mark function because that is the function that interact acts between the company and the investors. We wanted someone who we thought understood our business well, and we thought to represent our business well to investors.
And by investors. Just the clarity you mean investors like institutional.
institutional investors who invest in public, so are typically the largest one, racal funds managing billions and billions of dollars. We are looking for ten poll investors who would go for a while and we'd meet with them every six month or so. And they got to know business. They got to know they got that. We've developed a soft track record because they'd say the first meeting of when you can do in revenue this year.
So we're going to do million former .
version kind of person who over hype and delivers or under and I do I the .
world when you see the outcome, the process behind the outcome is invisible, which is the whole return in doing. I didn't know that. Why does that relationship that with the capital markets experts matters so much?
In the lead up to the IPO, we wanted IT to be not a black box. One of the things other CEO had told me who done IOS when I reach out is like, somehow, you know, you do this road show, you get to the pricing meeting. They say, okay, we recommend the Prices this, and then the shares just magically disappears.
And we we really cared about who got the shares. So we wanted to have a vote in who got who got the shares. And um because he was such a tiny offering, we wanted to concentrate the shares in that shirt list much at a much higher level than was typical at the pricing meeting. We jd. Shared frenchy and we're like, no, no, no, no, we have to give .
these guys ten times more and he's gone no.
no, no, no, no. So who voted IT was decides they engaged in and that's probably the biggest thing where we met in the middle of said, okay, I understand your rational, but so we had this very constructive dialogue around that in many IOS. That does not happen.
That is such an art for behind this things, orchestration.
It's all hang over from the ninety nine two thousand period when those allocations were truly a black box. And somebody said, point there, any innovation in the market? And I said, the biggest change or last ten years is that it's become more transparent and that is more than norm today.
There is a genuine conversation around IT. Now i've seen the other side of IT, which is a management team, says, no, it's going to be like this. Ultimately, their vote is the vote the matter, right? But i've seen the scenario where they make mistake there too.
What the open table team did well is actually investing not just the bankers, but actually the investors. The thought process was Better. They know our business.
These are the people who are going to have skin in the game and really own enough of our staff and know where the business can go and hope they tend up in a difficult. And so jeff essentially invested in that process, and I think IT was critical. So one of the debates we had was size of I P O. yeah.
And so we spend all the .
time doing and know what for companies on how big does your IPO need to be, what is your market market need to be, how big the proceeds need to be? And if you appear, if you just sort of look IT doesn't pass the common sense test or right, why does some portfolio ager ideality, who manage billions and billions of dollars, investing the open table I P O when the initial proceeds are only going to be thirty seven million dollars? Now ultimately, because IT went well, we ended a pressing just shy of seventy in the IPO. And then in september, we ended up doing a follow on transaction that was two hundred and ten million doors. But the point was why is IT worth IT to more than same investment manage?
I I if you invest the .
time to let them see where the business can go over time, they're gonna gg into their position over time. You know if we had been we were in a house market, one expression we always uses in difficult times, our investor coins focus on the things they own, not those things that we want to show them. What do you 明白 that meaning new ideas。 So it's just a risk of issue. And jeff made the point about great, great companies being able to go out in any market. Good and OK companies need to pay more attention to the investor risk of .
back to the notion of pricing. We had Lauren levi, who is a former CFO of pixar, on this podcast, and he is the one who helped Steve jobs take pixar public. And one of the things that he talked about, how he was the biggest fight between him and Steve, and the reason was because, of course, he wanted to go high because he wanted a big gas IPO like netscape at the time, and he was on the hills of that. Lawrence is like, no, no, you wanted deliver some returns for the investors. And there's where the sort of dance back and for IT, how did you guys want to do that dance?
Yeah a lot of the .
discussion for fighting.
Uh, no, no, no. There's a lot of discussion, you know or I P, O market gap was four hundred and fifty million hours, roughly raising raising proceeds .
of the .
trade and IT too well. yes.
So what is that? Where is that bad of a trade? Too well.
But IT means the company company didn't get as much money as they could have if they .
had a Crystal all. And because the whole point is to get .
capital to continue growing and leave money on right now. To be clear, when you up floating a small amount of the business, you can compound this problem.
Go back back to .
the point around the final and eros meeting larger position sizes they recognize. The two events they care about are the distribution of shares that I, the allocations which we went back and forth on and the first day of trading. And then he starts to become very, very liquid.
And there in the public market, how how do they become a liquid?
The float is only seventy million hours.
And then we convince people that IT was an interesting stock to buy and hold. That mean we had no fairly trading buying.
So if the stock was trading around thirty, there were days when I was trading literally two thousand chairs, only five hundred chairs. Not many people moving money, correct? And so you can get these huge gaps. So IT did trade too well. Yeah, that's a baLance that we're always trying .
to from your perspective.
Yeah, I know. So when the gino documents had a twelve to fourteen dollar Price range, I think we updated IT to sixteen and the eighteen over the course of the road joke, the show was going well. The first two investors said, I, I went a full allegations. So he quickly became a hot IPO. We are probably in.
you just .
talk to the market to twenty two and we prised to and most management teams, board CS are gonna grass for that last dollar. I think the open table team correctly was very thought ful about the fact that this is just the IPO I care about the next two years.
Did you guys tell me the truth? Did you guys have like a magic number in your head before you start those pricing discussions? Like do you think in you have to know what. When I go to see that night, I want twenty five dollars.
When this part of what our statue was, we're going to do IT a little IPO. And then if I went well, we're going to do a pretty big secondary. And so the company was much more focused on make the secondary successful.
And IT was make the IPO successful. Part of making the secondary office is successful as you need a couple deep pocket people in the IPO. Even though was a king of IPO, so are one of our leading shareholders ended up being well done off the fidelity. And so we say will invest out of your ten billion dollar, whatever is fun, four million dollars. And he's like, I don't have the time to read your earnings release at that level, but we we convince him to come in because then in the second, he was able to back up the truck and he got what he wanted, which was a little nerve legation. His allocation, five percent of for seven to four million dollars.
some number like that. yeah. And one of the things that made the ad on so much easier is because everybody knew that we could have raised well ove twenty years when we praised at twenty that I think built some real goodwill between the men team .
in the investors that you guys are willing to be the chazy for.
who got the shares, not the Price. They got the chairs that, yeah. And I would do that again in a second, advise management team to do IT like crazy, because as a CEO managing a public company, you don't want people who are in and out on women on hot money, because you spend then all your time literally mark into new investors. Please buy my shares. There are multiple reasons to one, a prospect to one of small handful of ten pool industry who buy and hold .
your dog one as they .
buy and hold the other is that just makes your life is sure. Do you want me to call you after every earnings call what I like? No, I listen to call almost all. Then we're just like, no, i'll reach out if I need anything. Thank you very much.
In the first year and a half, there was a period where we dealt with the momentum crowd coming into the stock and and ching went from the projected keep mind when we're gone public in two thousand and nine, the projected top line growth in the business was in twenty percent from analyst perspective, right? Just another just under sixteen to twenty doing with the ends. IT was always a high margin business. And then I went when you went to forty percent top line and forty percent margin, that's when every momentum investor came in. And so that was one of things I think became .
more chAllenging to manage. I mean, like tech fund people .
not just touch fund, but in many cases, IT. Is that a broad stroke? Ultimately, their investors who just care that you're going to beat the quarter.
And IT was so interesting because there were a handful of investors before the IPO were tracking the business. So I was told that fidelity will does not do IPO pitch meetings, will walks into the meeting and spent the whole sixty monster. r.
Denis lyn, jet Morgan stanly does not do IPO meetings. Dennis h was early, was waiting for us when we got you. Those who you like have done member, get ork of facts, everything else. Dennis can tell you what three private companies. He wants an IPO allocation.
And today for five.
the other guys, you've just blown away six quarters and said, oh my god, I need to latch onto that shock. Like where were you when I was twenty? You're buying in one hundred ten. Now there the guy that will jump in, but they also jump out that when stocks real.
tell me about any behind the scenes fights or discussions that you had with your team like where disagreements I mean, you might you are saying this, but we're there their part where you guys like we can agree on the pricing that these guys are discussing with us.
We can agree on the timing, not a time the the board gets involved that a few steps along the way. One is I involved them in the selection .
of bankers. They were there.
make off. We had like six people, and we try to wisdom of crowds. No one was allowed to say who they liked and didn't like.
And we'd got a ranking one to sex. And IT was unanimous. We did a sub group that got when deeper than the rest of the board of the ibo community.
Then the board also gets involved in things like, okay, you launched the road show and what's the Price? Almost all of the decisions of the process is being run by the management team. And so in our case, IT was CFO, mat Roberts and myself. And we insulated the entire rest of the .
company from IT way. So you do not .
involve the rest of the company there there back in safeties, go building .
a business, were spending and running around the country.
You and in fact, one of the mistakes that we see companies make, period ally, is is one building employee expectations towards an IPO too early in. Two involving too many people. If you think about IT, one of the things that larger companies, private equity bact companies, tend to do well is the value that divide the option value.
They get themselves ready to go. But guess what? Theyve also get more .
resources of the company to do you break down .
option prep and with venture back companies, I think you have to be mindful one the boards or mindful all the of the distraction that you can create through the IPO problem. And so what jeff matted would say, you know what, this is going be born by us. Everybody else do their job. Everybody else is focused on doing their job and imaging the business go back to when we returned to the odds of IT being a louy market that we might say, you know what, this is not our year to go were there. So would have been a huge distraction.
One of the things we haven't talked about is that in a lot of cases, IP s involve novel technologies that are not familiar to the market, and you're essentially selling a new way of doing things now is very familiar to to actually book reservations online. But how do you think about involving other key like technical people to help sort of educate or at the C E O or the C F. O, don't you feel frustrated or as a founder that my CFO can't represent this.
that, well, I had a very good, C, F, A fantastic job. He actually was the one to work related.
almost all till the road show you fo can story to see the first out. Do I think of number people who are just different.
C, F, S, can have different styles. They just, the investor has to trust them. That's what the investor is looking at. F.
to from the perspective.
degree.
attention in the detail.
My mom, we often rain into management .
teams that want to have too many people on the road, three people, sort of the altered number. And can two .
point about to the business.
two year point around technology periodical, if IT the highly technical business, you might suggest you have that person there for Q N. A. yeah.
But you don't want to have the distraction. You want to have dialogue. Most investors expect CEO C F O dialog.
So when you get to the C F O question, we can tell which teams are gonna need a lot of preparation and IT sell in both C E O and C F O. And then we just we hit him with questions. Is the type of question .
was A C E O in my case, he just what doesn't want to say you're in a different city every night. You're doing like seven meetings a day, hour long meetings a day. And the thing they stress more anything is give exact of the same presentation and answer every question exact of the same.
Because regulation F, D, fair that they, no, no, don't be playing around, given that slide two different ways. That's why you like a robot. We did IT forty two times and like .
two weeks voice.
Yeah I can image.
And I one .
really helpful thing is the open table core customer included bankers living in new york earlier my career at ebay. None of the of those owners would use ebay unless they happened to be collecting something because time is much more valuable to me than money and the cause saving thing. The chAllenges .
is the consumer business. It's one of the chAllenges enterprise facing businesses and especially fast business is where the the models also is for people to talk about. So I want to talk about the arms in the road now and the unexpected things that happened. I mean, there's lot of doing in the road up to the IP lot of prep, clearly. But despite all your hard work, unexpected that happens .
IT happens in everyone. I wasn't IT ebay at the time, but I I believe amazon launched their auction competitor on during the the IPO in the secondary in yahoo unch their auction competitor on the other one. We had two big this one is um we got our ligature patent troll lawsuit um that happened while were on the road they waited .
IT on the road point .
of maximum bridge and but you just got so that was one the other one was a little more self inflicted and turned out no one had done A I P O for a long time including the c our accountants and our attorneys and our attorneys at the last minute update the five. The key is very formally. They update the filing the night before and the S, C, C, get IT and they say this is approved and you ready to sell in next morning so after a bottle wine that night, when I like, were trading the next morning and I make up a little little like three, I mean, you've just wired, go to the gym on working out, open up my .
smart phone .
and see what because was two thousand offering on hole .
turned out the .
turny had when they did the last turn, had had attached the wrong, uh, attachments. Yes, he see approved something. The error that we actually knew was ironic.
And so if we started trading on one's document, there's a chance. E, S, C, C, because I, no, no, no, you have to online. All those trades go to over new returnees are, uh, all the atterburys on the deal.
We just start trying to get the S, C, C on the phone. And so we, dell, end up delaying the opening. Finally, right, is the market open as yes, he sees, I know your blast again. And so then started trading IT out later.
but we did have delete open. Yeah, we had we had a significantly delayed open, not unlike facebooks delaid open, just a different .
outcome instead of seven, if you're on .
the new stock change, you'll typically open closer to the nine thirty start in a aza. They have they always have someone delayed windows.
We were very delayed .
that says the money away half hour after trading has started. So I don't walk into a potential disaster that's like four or five miles no, just through the city. Um IT starts trading well because you're you're in good shape being go home so I walk back and then I was across and then I was just like.
what guys the .
same time square .
it's amazing OK wrap up and .
take away. Relationship matter, timing matters. But while I understand your earlier point that you can't time the market itself, the context of broader environment does matter. And how do you want to look at back then that was two thousand and nine and two thousand and eight years later are some review on how to x.
So a couple of the things that big takeaway from the open team have actually been somewhat formalize in the market. And so one of my big takeaway from this transaction was with the team did well, was invest in the process, be ready to go. They value the option value of being already they invested in that and then were able to respond to an open window.
Um essentially everything that jeff highlighted was um spending time with the public investors along before that forty five minutes to an hour long meeting when you're on the road. The jobs act. That second part has been somewhat formalize.
You can do that more easily today. It's called testing the water's meetings. Now some management teams probably placed too much value you want IT. To your point, you weren't going in meeting with a cast of thousands. Your meeting with a narrow .
roof of beliefs, right?
And so what I tell people is beyond a certain number, you hit diminishing returns. IT is particularly helpful for you business that you don't think you can get a full appreciation for in that one hour meeting. yeah.
And so it's a business to business discussion, but have a discussion with your bankers around whether the test in the waters meetings have value on a relative scale for you. But that's something that the market has enabled with the job jack, later that into your timing equation. I think that piece of voice have given people timing IPO for your business and your team.
Your team, including your garden investors, don't time around the market time and around the right time for your business. Think about the scale that you need to be at to be a public company. One of the questions we get, what map is too small, well below certain thresh holds. We just shrinking the number of investors who will buy the deal, and that's not .
a good leverage thing for the company growing.
Yeah.
there certainly are.
I think that you have to think about um how unique is the business if there are four public companies that given investor the same exposure and three of them are a decent market cap and you're going to be a the very small one yeah you Better offer something different yeah open table was certainly unique .
even away from the there you can go too early, you can go public. Um if you if you want a multiple, you want to be a great stock.
Where is that matter to be a great .
if you get a different fundamental valuation and different set of investors who are willing if you're growing investors or can say, boy, if they keep that up for five years, look at that admission future, that's wonderful. You're not growing. They look at and say, I am going to get any Better .
IT seem like the best technology companies are like that.
Oh yeah, you want to have the perception, your good company, which actually means you have to be delivering growth results and typically, growth rates decline over time. We were in the teams growth over your growth rate according the analyst models. We went out that's not really a strong growth company.
Then we we increase the growth in the thirty forty eight percent that was a growth company to have you wait too long. But if too early, if you not ready to be a public company prediction there. Is this okay? The bit bigger timing is from the company's perspective, not from the markets.
That's a really great shift in mindset. Just one ick results. And that is obviously that the quarterly results, the earnings calls and the whole song and dance.
I goes around that how do you managed that? What did to that one is on the timing of going out. Uh, you when you go out, you don't want to miss the first x quarters.
You can know how many x is, but you wanna a be highly confident you can exceed the expectations that your investors have. So I usually councel C E S. What before they go out of have something in your back pocket? We had two or three initiatives that we tested at small scale that we knew were gonna and add to the business. So I was highly finding .
when to make your numbers, and I get that important for the market confidence in you as a company. But it's also very frustrated because of criticism people say about IPO. Is that that when you're now what IT to this ridiculous quarterly .
measures of innovation, I think that I think that whether you will allow yourself to be or not, the pressure is there to form, to invest. Expectation of my god, i'm number. That's the most of the uh, reason for not one thing to be a public company.
Look at jeff beza. He's run the business exactly as he wanted. He told investors exactly how going to run. He is coming of they've stayed with them twenty years. He heard some .
of the yesterday because universe of people who got the early IPO, they might have only spent like one hundred dollars and now were six.
four thousand dollars. What investors did you recruit and then, uh, how do you communicate with them? Um so we have increasing early question. Do we give guidance do to say next quarter, we think we're going to do revenue of .
acts and earnings and analysts do that.
But often the company gives a range and that, that helps the analyst cue in on the range is the company doesn't give IT you live in the analysts to come up with their own number. As I got a tough question, I guys, I LED three largest holders. I said, I all three said, no, I go.
why? And they go, well, um we want you to do what's right in the statistic, long term interest of the business. If you give guidance, there's going to be pressure for you not to do what might be right.
And with with new learning and IT helped that our business was highly predictable from outside. yes. You know, I said, is what is not one of these? Like, did we close the last deal on the last day of the quarter? Know the diners are being seated by the millions. And so at the law of large numbers kicked in IT.
predictable with great metrics. S like you has invested in explaining the metrics that matter to you as a management team. Periodically we hear people get this mantra of no guidance, and they interpreted as no communication. There are two very different things, right? You were not signing up to a quarterly number, but IT was because you are giving much transparent to what drives the business.
S O L.
A public on the most interesting things I have done in my business career. And part of IT was, I turned out in my career never done a financing. So for my first financing to be taking over table public in may two thousand nine at the depth of the financial IT was an amazing a learning experience.
And there's a lot of emotion I think is more exhausted. I ended up with the swine flu. And ron, but we shoot four hundred hands. Your life .
is your thank .
you for and if you .
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