Union Square advisers, Ted Smith, join the Yahoo Finance Live panel to discuss the prospects of the IPO in 2021, while Bumble officially makes his public debut.
Video transcription
AKIKO FUJITA: We are still waiting for Bumble’s shares to start trading there. The shares cost $ 43, now scheduled to open at $ 76, I think for the last check there. Therefore, we expect a significant bump. Just one of many companies that saw a big bump, at least on the initial day of the IPO.
Let’s get Ted Smith. He is co-founder and chairman of Union Square’s advisers. Ted, it’s good to talk to you today. I imagine that you have talked a lot with some of the companies in which you invested in this red hot environment around IPOs, either through a traditional listing or also through a SPAC. How does it feel now on the private side of things?
TED SMITH: Well, first of all, Akiko, thanks for having me today. I really liked that. And you are absolutely right. We are having a lot of conversations with our private clients at a later stage about how they think about finally getting out. And there are many more options today than ever before.
It has the traditional IPO, which is obviously still available for large companies and a certain financial performance. There is this incredible increase in SPAC that we’ve seen over the past 12 months. And there is also a very active mergers and acquisitions environment, both for strategic and financial acquirers. Sponsors, private equity firms have never been so busy, never had more capital at their disposal.
So, really, it’s an excellent time to be a private company at an advanced stage, just in terms of the amount of capital that is available to these companies and the opportunities they have to go public as a way of reaching an exit or reaching a exit through a sale to a strategic or financial partner.
ZACK GUZMAN: Ted, just to follow up on Akiko’s question, I mean, how worried might people be when we talk about this downside compared to the technology bubble? Because we’ve seen the reviews stretched here. And we will see where Bumble goes, but it seems that we are seeing more and more, whether SPAC businesses or IPOs, more and more enthusiasm, so to speak.
TED SMITH: We are seeing a lot of enthusiasm. I really think this is different. I mean, I was … I’m old enough to do that and be part of the environment in 1999, with which the current environment is often compared. I think the main differences are at least two. One is, I think companies that are going public today have much better long-term business models than several companies that were able to go public in the late 90s, a period of time from the early 2000s before the bubble burst. original technological innovation.
Therefore, I think there is a difference in terms of the long-term viability of these companies, their consumption of capital and, ultimately, their ability to generate profits. So I don’t think there is a comparison between the types of businesses that are going public.
I also think that markets are significantly more liquid today and, as I mentioned before, significantly more options for companies to hit some kind of liquidity event. It’s not the IPO or bankruptcy or IPO with maybe an M&A as a backup plan option that was really in Vogue or the dominated type in the late 90s, early 200s. it is a difference between the two markets.
That said, there is no doubt that we have an incredibly heated valuation market right now. What we have witnessed over the past 12 months, when we entered the pandemic, we saw the markets almost fall at the end of the first quarter of last year. They stayed there not long, as optimism grew, at least in the technology space, as there was a view that technology companies would be part of the solution to how we were going to face the pandemic, rather than part of the problem. And we have seen that these assessments continue to rise over the past nine months.
And we hope that, frankly, will continue. So I think we– I think investors in this environment need to be cautious about the assessments they’re paying for any company in any particular construction, just given the fact that those multiples that are there are really all the time high In so many cases.
But we also see these businesses continuing to grow, continuing to consume capital intelligently, to attract new customers, be they companies or consumers. Therefore, we believe that there is still a long way to go for these companies to continue to be successful. And that is why they have achieved these incredible assessments and, frankly, are likely to continue to have them.
AKIKO FUJITA: Ted, you mentioned the huge growth we saw in SPACs, and I wonder how it affected things on the VC side. We heard about how competitive it is, where investors are choosing these companies, saying, please, let us take you to the public. Does this end up leading to a significant disruption for VCs?
TED SMITH: Well, I think, again, I think that gives VCs one more arrow in the proverbial quiver with which to think about their exit alternatives. And certainly the VCs that have large-scale companies in their portfolios are evaluating this. In addition, companies that have realized high growth prospects that are not yet in scale are clearly interesting for some SPACs at the moment. Given the difference in the way SPACs are finally marketed to investors and the opportunity for companies to arrive earlier – to go public sooner, instead, through a merger with SPAC, we will see a few more companies oriented towards VC make it public that way.
I think the only thing that worries me in this world is that we have not yet seen a kind of major collapse of a technology company that went public via SPAC, an entity that loses the projections with which it left the market and talked about these huge prospects growth and, finally, its profitability prospects. We didn’t see that happen. And obviously, I’m not expecting that. But I think history would indicate that we will see this happen at some point – at some point throughout 2021.
And then it will be interesting to see if the SPACs kind of stepped back and said that maybe we pushed this envelope a little bit further. Perhaps we should not think so aggressively about some of these early stage companies going public. Because there is a reason that, through traditional IPO markets, these companies still don’t go public.
And, finally, I think we will see a convergence in the standards by which companies can go public through different means, regular IPO, direct listing and SPAC, so that companies of a certain size and limit of growth and profitability go public, if they go– any of the routes they choose.
AKIKO FUJITA: Ted, let’s talk about your investment thesis now, some areas where you are focused on Union Square Advisors. Obviously, we hear a lot about the growth in the AI space, in the cloud space, as a result of the pandemic. But you also looked at some of the verticals that are likely to have a big impact on the back of the global vaccine distribution. What is getting your attention on that front right now? And what are the opportunities for you?
TED SMITH: Yes, then Union Square Advisors mainly helps private companies at a later stage and public companies to raise capital and also advises them on their alternatives to exit mergers and acquisitions. So you’re absolutely right. We continue to focus a lot on AI and its various forms. We think it has applicability to a wide range of verticals, places like Human Capital Management. We certainly spend a lot of time with companies that have next generation AI for security purposes.
Edge AI being used in smaller devices, such as cameras and other devices that are not fully developed computers, we consider extremely important and also relevant to the way we communicate and how we interoperate during a pandemic. Having that AI on the edge that can replace a human being, performing a wide variety of tasks, in which we are trying to prevent humans from coming together, is extremely important.
I see it on the graph and we talk a lot about digital transformation, which we think the pandemic has only accelerated. So, as big companies finally manage to reduce their paper-based footprint using a combination of robots and technology to be able to manage their huge paper mills and convert them into digital use cases, we believe it is a huge business. We are tracking a number of really interesting companies in and around that space as well.
AKIKO FUJITA: Yes, it has been fascinating to see which sectors really prospered during the pandemic. Ted Smith, co-founder and president of Union Square Advisors, is delighted to speak with you today. Thank you for your visit.