- Product analysis software maker Amplitude, the second direct listing for venture firm Benchmark, has touted this approach.
- “I think we’ll see more deals in our portfolio, and more generally,” said Eric Vishria, Benchmark’s partner and Amplitude board member.
- Amplitude reported 66% revenue growth in the second quarter from a year ago.
As vocal as Benchmark’s Bill Gurley is about his preference for direct listing over IPOs, his venture firm has had limited success in getting its portfolio companies to choose that route to the public market.
This may be starting to change. On Tuesday, analytics software vendor Amplitude debuted on the Nasdaq via a direct listing. Instead of raising new capital at a discount, the company allowed existing investors to sell shares at the market clearing price.
Amplitude is only the second straight list to come out of Benchmark’s portfolio. Asana, a collaboration software company led by Facebook co-founder Dustin Moskovitz, was the first a year ago.
“I think we’ll see more deals in our portfolio, and more generally,” said Eric Vishria, Benchmark’s partner and Amplitude board member.
Amplitude shares opened at $50 and closed more than 9% from there at $54.80, giving the company a market cap of approximately $7.1 billion on a fully diluted basis. Benchmark, the largest investor, owns 15% of the company, with a stake totaling more than $835 million.
The direct listing trend started in 2018 with the music-streaming app Spotify. Slack followed in 2019, and Palantir and Asana were notable names in 2020. This year, there have been at least six direct listings, including those from Coinbase and Roblox, while glasses company Warby Parker is also up for direct listings this week.
Gurley has boldly advocated for the approach on TV, Twitter and their own blog, arguing that the IPO process is permanently broken and is the equivalent of handing out cheap stock from companies to Wall Street. He reiterated that sentiment in an interview Tuesday on Businesshala’s “Squawk Box.”
“As I have mentioned several times before, the legacy IPO process has evolved into a process where large profits are transferred from investment banks to their business clients a day,” Gurley said. “There’s a trendy way to do this. You can actually use supply and demand to determine price allocation and that’s what a direct listing does.”
Dimension was initially called Sonalite. In 2012, the founders showed off their product as part of Y Combinator’s Demo Day. They were introducing a Siri-like app for Android phones that allowed users to send text messages by voice.
The Sonalite team also built software to see how people are engaging with their app. Other start-ups expressed interest in the technology, according to techcrunch. It’s a story that will be familiar to anyone who followed the early days of Slack, which was originally built as an internal-messaging tool for a start-up. Focus on developing online games.
Sonalite gave birth to Amplitude. The founders studied Y Combinator for the second time in 2014 and won a check from Vishriya on Benchmark.
Visharia described Amplitude as a “moneyball” for product development, a reference to Michael Lewis’s 2003 book on Oakland A’s general manager Billy Bean and the use of unconventional figures to assemble the best baseball team possible on a budget.
Amplitude CEO Spencer Skates and co-founders Curtis Liu and Jeffrey Wang focused on refining an app or website by measuring activity at each stage so the product team can make adjustments that lead to more desirable results.
Over time, amplitudes became a tool for various parts of a company’s operations, such as marketing and support. Disney and Walmart signed on as customers, even as Amplitude had to compete with analytics software from heavyweights Adobe and Google.
Like software businesses in Silicon Valley, Amplitude hit a catastrophic last year in the early days of the pandemic as companies quickly cut their spending. Costs went up according to amplitudes and revenue growth did not sustain catalog.
Benchmark’s advice was to prepare for different scenarios.
“One thing we didn’t plan for at that early stage was, ‘Oh my god, this is going to completely increase the importance of digital,'” Visharia said. “Everything is going to get really fast.”
Revenue in 2020 climbed 50% from the prior year to $102.5 million, and the company’s net loss narrowed. Growth has accelerated this year, with revenue jumping 66% to $39.3 million in the second quarter.
Skates began seeing direct listings in 2019, when Gurley began publicly advocating for companies to choose that option.
Skates attended an event held in San Francisco to educate venture capitalists and founders about the mechanics and benefits of direct listing.
Vishriya said of the skates, “I think he really liked a lot of the qualities or features or features of direct listing.” “I found with a lot of tech engineering founders, they love the cleanliness of it. Stock’s going to open up, we’re going to match buy and sell, we’re going to get a fair price. You don’t just build something.”
After the incident, Skates researched the process and talked about it with other board members. He said there was no universal consensus, but they all indicated that they would support him in any way.
Neeraj Agarwal, a director at Battery Ventures, said he backed the IPO after going that route with Coupa, Nutanix and others. But Agarwal eventually saw that there wouldn’t be a big difference to long-term shareholders, and he appreciated that there was less dilution for existing backers.
“The thing that was really clear to us is that IPOs are traditionally low-priced companies, not just a few, many — hundreds of millions of dollars on average,” Skates said. “As a subsidiary to our existing shareholders, giving them a bad deal is completely unacceptable.”
Agarwal called it “a pivotal moment for direct listings in my world”.
Amplitude sold some shares earlier this year at an IPO discount. Starting in May, the company raised $200 million, sale of shares for $32.02 per piece. At Tuesday’s close, buyers, including Sequoia and Battery, were up 71% in just a few months.
But one of the primary benefits of a direct listing is that existing shareholders, especially employees, are not locked in and can begin selling stock immediately to the company rather than assigning shares to new investors, who can trade immediately.
“Public market funds – they don’t need money. They are the richest people in the world,” Skates said. “They’ll be fine. You have to pass it on to your shareholders.”
Watch: Bill Gurley praises raising of capital through direct listing