After nearly a decade, the NYFSE's comeback is finally complete. (Suck it, NASDAQ)
It was fitting for me to be visiting Scott Cutler, EVP and head of global listings for the New York Stock Exchange last Friday. Alibaba had just gone public and it was the crowning victory lap of the NYSE's nearly ten year battle to take back mega tech IPOs. Cutler’s tried to be the anti-Robert Greifeld -- the NASDAQ head who strutted around Facebook headquarters on its IPO day rather than make sure one of the most anticipated tech IPOs in history actually, yunno, worked.
But Friday afternoon, up in his office, just before he rang the closing bell, Cutler couldn't help but be a little smug. And to gloat a little.
"We knew if we could just open the door a little we could drive a Mack Truck through it," he says. "Now they are looking at our exhaust."
Cutler deserves to be smug. In the dot-com boom, the NASDAQ stole every bit of historical thunder the NYSE ever had. You'd think the world of public finance -- ground zero for mom and pop Main Street's pensions and investments -- would resist fads. You'd think brand associations like safe and stodgy and a mistrust of machines would all be viewed as positives. But they weren't -- at least in the tech world. And even the dot com crash couldn't dent NASDAQ's brand among the tech elite.
Back in 2007-ish, when Cutler and crew started to work hard at winning tech IPOs as they started to bubble back up, he had to fight hard for the NYSE to even be considered. It wasn't just founders who were concerned -- he had to actually beg bankers to consider listing on the more established, but manual-by-comparison exchange, hoping to convince them that it was "safe" enough to trust with an IPO. That shows you just how out of favor the NYSE was back then -- and makes the comeback today just that much more remarkable.
When was the last time we saw a "has been" brand come roaring back with this much of a vengeance? Year to date the NYSE has lead 89 IPOs, raising some $27.3 billion in the tech space. It's won 57% of the issues when it comes to all US tech IPOs, but this figure is the one that matters: It's won a huge 84% of the market share of US tech IPO proceeds. Put another way: It's won nearly all the big ones, the ones that matter. The total capital raised via the NYSE year-to-date represents some 76% of all capital raised in the US -- making the NYSE suddenly the global leader for the third consecutive year.
But 2014 is really the year it all came together. This year’s scoreboard-leading $27.3 billion figure dwarfs the $1.8 billion tech IPOs raised on the NYSE last year.
A lot of that is market timing... and the luck of a competitor fucking up the big win of Facebook. That was outside the NYSE’s control and turned what should have been a huge setback into an opportunity. Likewise, the markets don't exactly get an Alibaba-esque deal every year. Or ever. It’s officially the biggest IPO in history.
That said, the NYSE is one of those cliched “overnight” successes that was nearly a decade in the making. It did what all great companies do: It started early laying the foundation brick-by-brick to be ready for this moment – impressive for an aging monolith in a non-innovative sector.
Last December, I referred to the exchange as the New York Fucking Stock Exchange (aka, NY(f)SE) for adeptly seizing on the NASDAQ's Facebook fuck-up. But that was just a moment on the journey. It started way before that. And coincidentally one of the first big moments was the last time I was on the floor of the exchange: Netsuite's IPO in December 2007.
Cutler remembers vividly pitching for that one. It was pivotal, and he was very much the underdog. He won Netsuite, Neteeza, and 3Par, getting a strong foothold in software and storage. “Now we just need Internet,” he said then. He later got LinkedIn and Yelp, but not Facebook. And then the lucky stroke: NASDAQ’s untested new software bungled what was until then the deal of the century. It’s -- compared to the last time tech was raging -- been a layup since. NYSE has gone from practically nothing to 70% of the tech IPO market.
The NYSE has done more than just marketing -- modernizing ever so slightly as it competes for the most cutting-edge companies. The last time I visited the trading floor, I was doing an interview with Netsuite CEO (and now Pando investor) Zach Nelson and was in full makeup and likely an on-camera friendly DVF ensemble. The NYSE was still visibly pretty human-powered. I've apparently gone down market since: On the day of Alibaba's IPO I was massively inappropriately dressed in jeans, cowboy boots and one of my grandfather's old T-shirts. The pinstripes eyed me suspiciously, but no one kicked me out. Meanwhile the floor of the exchange looks way more high tech.
But the NYSE has always stuck to what differentiates it: Humans who watch each stock. They (rightly) perceived the problem with their competition for tech IPOs as a marketing problem not a product problem. Unlike a Yahoo, they didn’t try to beat the upstart NASDAQ at the NASDAQ’s game, they upped their own game. In the wake of Facebook this seems like a no-brainer but it wasn’t in the early 2000s.
The NYSE’s stubborn approach to valuing humans reminds me of a passage of our Peter Thiel’s new book Zero to One where he talks about how the best companies don’t automate humans out of things, but augment them. He describes PayPal’s own efforts to combat fraud and how important the combo of man and machine was. He further mocks the algorithm that Google created to scour YouTube videos and declare with 75% accuracy if something was a cat. As Thiel notes, that’s impressive until you realize a four year old can do it with 100% accuracy. Not a great use of machines.
It might surprise you -- given all this -- that Cutler isn’t one of those people jumping up and down and demanding tech companies go public sooner for, as Dan Primack put it, the sake of America. “You gotta connect eyeballs with a number,” he says. “A real number. Dollars.”
He points to Groupon’s rocky road post-IPO and the likelihood that they wish they could go back in time and take that multi-billion Google acquisition offer. Even if your company is going “up and to the right,” if you can’t predict the next three quarters do not file, he says.
What’s changed wildly, he argues, is the expectations and valuations in the private markets-- where the $1 billion club has given way to the $3 billion-and-up club.
Cutler has his own battle scars from the late 1990s. “We’re not quite at the Space.com days,” he said recalling an IPO he worked on that was valued at $1 billion on the premise that people would control lunar modules from an ad supported Web site. I ask if he knew back then that was absurd, and he shakes his head, saying, “I bought it. I totally bought it.” He remembers friends who “backed up the truck” on Internet IPOs ten years ago and never came back.
Waiting certainly didn’t do Alibaba any harm.