Slack’s share price and the future of direct listings

Hello and welcome back to our regular morning look at private companies, public markets and the grey space in between. Today we’re starting off with a venture capital Q&A, a quick look at Slack’s share price stability and some thoughts on direct listings and their possible future frequency.

Bu before we do, I wanted to ask for help. As we look at startups and IPOs and the impact that public companies have on young tech companies, I want to make sure that I’m touching on the right topics.

So, email me with thoughts and complaints. During December I’m going to riff and then settle a bit on format and topics as 2020 starts.

With that, let’s begin.

Piva’s $250M energy fund

Petronas (Petroliam Nasional Berhad) is a Malaysian state energy company best known for sponsoring Lewis Hamilton’s Formula One team, but the oil giant is drilling deeper into the startup world. The company announced a $350 million corporate venture fund in October, creatively named “Petronas Corporate Venture Capital.”

Now, Petronas is back at it, putting up the capital for a new $250 million fund announced today called Piva. The fund will operate independently from the main corporation, even as the energy giant exists as its sole limited partner (LP).

I was curious about the dollar amount and the goals of the new fund so I got in touch. Here’s a condensed and edited set of questions and answers to help better describe what all that oil money may buy:

TechCrunch: Why is Piva’s first fund $250 million, and not, say, larger? 

Piva: This is the ideal size for our first fund; not too small which would allow us to make too few deals, not too large that would force us to only focus on growth-stage deals. It provides us with the right amount of capital needed to back 15-20 companies we’re expecting to invest, given the size of the team that we have in mind. We expect to invest $5-$10 million per company initially, and $20-30 million overtime, in companies creating breakthrough technologies, services and solutions in the industrial and energy sectors.

Is Piva’s goal to help fund strategic partners for Petronas, or strategic acquisitions?

We have the freedom and independence to invest in any company that meets our investment criteria though we’re always looking for ways to introduce our portfolio to Petronas and its global partners. Therefore, we are not required to invest for strategic reasons and certainly can’t control who ultimately becomes the acquirer of our portfolio companies.

Having said that, we are looking to leverage our partner Petronas to help create value for our portfolio companies, and similarly looking to leverage our portfolio companies to create strategic value to Petronas. We view that as a win-win-win. And like any VC fund, the goal of the fund in to make strong financial returns for investors.

The rest of the interview, including notes on Piva’s views on battery tech, continues at the end of this post.

Slack’s new stability

Slack’s direct listing was a key moment in the startup world in 2019. By eschewing a traditional IPO, Slack helped stamp direct listings as the cooler way to go public. In the wake of its debut, Asana and Airbnb are also considering direct listings, for example.

But while Slack’s direct listing went well, its share price has since suffered. After receiving a reference price of $26 and reaching an all-time high of $42, Slack is worth a little over $21 today.

But notably, the slide that the company’s shares took through summer into fall has arrested. And, after its recent earnings report, Slack managed to stay in its $20 to $23 per share range, more or less. So, we now know what Slack is actually worth: about $11.7 billion.

That’s far more than its final private round’s post-money valuation, mind, which put a $7.1 billion price tag on the corporate chat company.

For Slack, finding its value must be a relief. Especially as its new trading band values it north of $10 billion. Call it an inverse Dropbox.

The question now becomes if Slack’s market repricing is considered a positive (the company found price stability sans traditional banker support) or negative (it’s worth less than its reference price and suffered a public fall in value) for direct listings overall.

Direct listings

Sticking on the direct listing point I wonder if they are going to see as much of a place in the 2020 IPO market as many expect. Summarizing market sentiment (based on what I’ve read, and investors and founders that I’ve spoken with), there’s optimism that the stock market will see more direct listings in the future than the past, as they are — putatively — better mechanisms for pricing companies when they go public while reducing value capture by banks.

Leading this view is an expected Airbnb direct listing, an anticipated crowning moment for both the unicorn era and the anti-IPO crowd. However, now that Airbnb’s losses are north of $100 million each quarter, the company’s cash position may be eroding. And if Airbnb keeps losing as much money as it is, why would it not want to raise more capital when going public?

You could argue that the unicorn still has has so much cash that there’s no need, a view that many VCs would support. But the same venture class was more than content to stuff Slack full of cash while it was private and hardly poor. There seems to be some inconsistency in when it’s bad to price a company at a discount to its future value; when private investors do it aspirationally in an investment it’s heroic and bold. But if bankers underprice an IPO compared to its first day close it’s cause for chaos.

The obvious counterargument to our only moderately serious point concerns risk (private investors take on more) and the time-value of money (VC investments are notoriously illiquid). It’s pretty good, but not exhaustive.

I’d guess that we’ll see three direct listings in 2020 and, provided that the markets hold up, dozens of regular IPOs. Expect more VC Twitter threads on the matter.

Piva’s future view

Let’s wrap today with the rest of our Q&A with Piva.

TechCrunch: Regarding investments, does the firm have any particular thesis on battery tech?

Piva: Energy storage will be a key enabler for the energy transition. There will be multiple winners as different solutions are required depending on the end applications, including utility scale storage, Commercial and Industrial, residential, and electric vehicles. We will be looking at breakthrough chemistries, as well as at overall solutions that can create value for end customers.

Does the fund anticipate investing in any “wave-power” generating tech?

We’re always on the lookout for new companies that can reliably and economically generate power for customers, which could very well include “wave-power.”

Your notes on the fund cited a phase that I wanted to drill into, what is the “Industry 4.0 revolution?”

We believe that the digital revolution that’s taken the world by storm is only now beginning to reach industry.  Over the next decade, advances in AI, computing power, and data analytics will lead to more efficient industrial processes, create new market opportunities, and bring more reliable, sustainable, and affordable energy.

This new “Industrial” era, sometimes referred to as Industry 4.0, is just getting started. We’ll be investing in innovative entrepreneurs and companies bringing new hardware and software technologies to industry.

Photo by Carl J on Unsplash