Massive pops during recent market debuts have shown that the traditional IPO process has only gone downhill, Bill Gurley of Benchmark said on Tuesday.
“The IPO process has gotten worse in the last five years, rather than better,” said Gurley, who led the company’s investments in companies such as GrubHub and Zillow, in an interview with CNBC’s “Closing Bell.” Gurley pointed to DoorDash and Airbnb, which rose 86% and 112% in the opening days earlier this month, calling the jumps “weird.”
“Bankers have convinced everyone that you want to meet only a handful of investors and then they will use this phrase, you can ask them, they have told everyone that they want to be subscribed 30 to 50 times,” he said. Gurley. “If you think only of the basic economy of supply and demand, who in their right mind would choose to be overwritten 30 to 50 times? And they looked at you with their right face and told you that this is the objective.”
Public offerings have rekindled a debate over traditional IPOs, with critics analyzing the money left on the table. Last week, Verishop CEO Imran Khan said public debuts showed extreme ineptitude by their investment bankers. Jim Cramer of CNBC also criticized investment banks for not adequately considering the “new cohort” of younger investors because they priced IPOs.
Companies that go public through the IPO process pay significant fees to subscribers so that new shares can be created and sold to the public. However, Gurley strongly opposed the fact that the default is an IPO, saying that it made the new listings less and less expensive.
IPO critics made a profit on Tuesday after the Securities and Exchange Commission approved the New York Stock Exchange’s direct listing plan, which will allow companies to go public without handing out strong commissions.
“I don’t have to rob myself of it anymore because it’s over, I just got a whole new solution,” Gurley said of the NYSE announcement.
Subscribe to CNBC on YouTube.