Axios Pro Rata
September 16, 2023
Happy Saturday! I took a very short trip to NYC this week for a conference, so here's my dispatch.
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Today's Smart Brevity™ count is 1,235 words — a 4½-minute read.
1 big thing: NYSE president on IPO return and AI
Arm's return to the public market Thursday was hailed by some as a comeback for technology initial public offerings, but the window's reopening is more cautious than it appears at first glance.
What they're saying: "There are deals coming to market with all different sorts of structures, so people are being thoughtful about how they tap the IPO markets at the moment," New York Stock Exchange president Lynn Martin told me Wednesday at Primary Venture Partners' NYC Summit.
Below are highlights from my onstage conversation with Martin at the conference:
What is Arm's IPO a test for?
"I think Arm is interesting in that it's got a core group of investors that aren't your traditional long-only funds [as anchors].… It's more of the customer base — so I think that's one of the things it's testing, the deal structure. I think it's also a test for the tech markets, quite honestly — but a portion of the tech markets. It's a very specific deal, it's not software, it's hardware. It's your more traditional company."
What's your assessment of investors right now?
"It's not growth at all costs. If you want to tap the public market, you've got to be disciplined, you gotta have a disciplined strategy, you've got to have a story that you can articulate.…
[I] totally understood why so many companies came out to market at the end of 2021. The valuations were incredibly frothy.… But what was being rewarded was growth at all costs, as opposed to core discipline, core strategy and execution of that strategy.… But I think it's instructive that these deals are getting done now, and it shows that there is investor demand out there, and the market is ready to welcome good companies to the public markets."
We didn't have IPOs and now we do. What changed?
"I think there's just a lot of dry powder on the sidelines, and companies, and long-only funds excited about investing in new companies.…
From a market fundamentals standpoint, the one thing that changed is the VIX.… Do you see the VIX at 30? There's not going to be out of IPOs.…
It's not about your IPO day, but the days, weeks, months, year that follows your IPO. Because you're gonna have a great IPO day, but then you're gonna have to do the hard work of doing your earnings calls, you're gonna have to be on the road with your long-only investors trying to drum up interest.…
What are your predictions for the rest of 2023?
"The first business day … after [Cava's IPO], we had five companies file and start their roadshows. They wanted to get out because they saw the positive effects.…
It might not be … that you see a flood until '24, because I think there's still a little bit of uncertainty. We'll see what the Fed does in terms of interest rates.… So that's that macro uncertainty that I was talking about, that's still a bit of an overhang in the market.… I don't think our pipelines [are] gonna move tremendously.
SEC chair Gary Gensler is concerned about artificial intelligence and its ability to create the next market crisis. Do you agree with him? What are your thoughts on AI?
"In terms of regulation, I think having guardrails around it: possibly good. But I think at times regulation has — overregulation — has had unintended consequences.… I hope the conference that happened in D.C. today, with the tech leaders, I hope that policymakers are listening to them, because they have experience in rolling a lot of this out. And I hope that's rolled out responsibly. There are a lot of considerations, though, that come along with that technology."
Are you concerned that brokers are going to be using AI models, or deep fakes could make people think something's going with a company?
"I think that's where it comes back to data and human overlay. Humans have to be able to interact with these things to put intelligence over any piece of technology.…But a lot of times there's bad data in the system.…
It also comes down to the strong regulatory framework that companies like us operate under.… There's this race to be first to market and go after the next sexy thing in the market.… Given our role at NYSE, we don't always need to be first to market, we need to be the most thoughtful to market.
And that means we need to think about regulatory implications given our systemic importance in the market.…"
2. What they're saying: USV's Fred Wilson and Rebecca Kaden
Union Square Ventures partners Fred Wilson and Rebecca Kaden closed out the show with a wide-ranging onstage interview with Forbes' Alex Konrad. Here the highlights that stood out to me:
On New York as a tech hub:
Fred Wilson: "I think that location means something different now than it did five years ago, or 50 years ago. It used to be that a founder had to decide where they were going to build their company, VCs had to decide where they're going to locate their venture firm. I don't think it matters very much anymore.…
There's more top talent in New York now than there's ever been.… That doesn't mean, though, that there's more tech talent in New York than has ever been, because there's more tech talent everywhere now.…
We've definitely seen a couple of waves of venture firms opening up offices in New York and then closing them. And we may see that again, I don't know.…
And so while Silicon Valley had a love affair with New York for a while, and then, you know, in the late 2000s … left, that didn't stop the community here from growing."
Rebecca Kaden: "It's an extremely expensive city to live in.… And so if we really wanted to be the hub we all do, I think there's some structural changes that have to happen to make it a really hospitable place for young people.… I think the other big question is, does the trend around remote hire anywhere sustain? … And if we go back toward a more co-located or hub-based culture, you know, we need depth of engineering talent here, and that's still growing."
On venture capitalists recently deciding to hold and manage public stocks:
F.W.: "They're idiots. They held on to the stock, they rode it all at the top, and they rode it all the way back down. It's embarrassment.… They should be fired, their limited partners should fire them, and they should never give them another dime. It's irresponsible what they did, in my opinion."
On crypto overfunding:
F.W.: "Here's where I have to eat some crow.… There are some things that we should have sold that we didn't sell in our portfolio.… I think we actually played the market pretty well in crypto, we distributed something like a billion dollars of proceeds in crypto over the last four or five years, so you don't want to apologize for that. But there are some things that we should have sold that we didn't sell, so we rode some things all the way back down. So just being honest about that."
📚 Due Diligence
In lieu of trivia this week, send me your thoughts on distributed teams, remote work and the like when it comes to VC and startups.
🧮 Final Numbers
🙏 Thanks for reading! And to Javier E. David and Brad Bonhall for editing. See you Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and seed investors to sign up.