Welcome back to this week’s transcribed edition of Equity, TechCrunch’s venture capital-focused podcast that unpacks the numbers behind the headlines. We’re running an experiment for Extra Crunch members that puts the words of our wildly popular venture capital podcast, Equity, in your eyes instead of your ears.
This week, Kate Clark and Alex Wilhelm recorded an emergency episode to discuss Lyft’s IPO, which debuted Friday. The crew has been talking about the ridesharing company for a long time and this week, it closed its first day of trading up 9% after a 21% opening pop. So if you don’t like podcasts but still want the goodness that is Equity, you can have a read of this week’s episode below. It’s been edited for clarity.
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Kate Clark: Hello and welcome to Equity. I’m tech crunches, Kate Clark and I’m joined today by Alex Wilhelm of Crunchbase news.
Alex Wilhelm: Hey everybody.
Kate Clark: How’s it going?
Alex Wilhelm: We’ve been doing a lot of Equity lately. I almost feel bad, but also all the IPOs we’ve been waiting for are finally here, so I’m kind of excited and glad.
Kate Clark: I mean, yeah. A couple extra episodes is the least we can do given that one of the most highly anticipated IPOs ever was just completed today. But I think we’re all a little bit relieved that the Lyft extravaganza has sort of come to a, well, I guess it’s not over now we just get to report on their earnings.
Alex Wilhelm: Yeah. But I mean at least this portion of the story is complete. Like we’ve been talking about them eventually going public for quarters and quarters now. Now it’s just Lyft had a good or bad quarter, it’s a two minute story and we can move on.
So it’s nice to have gotten here. But can we go back to the beginning and there’s not a lot of steps Kate, that though you and I have been tracking very almost religiously, but for a lot of people probably not as close. So I was thinking we could kind of go back to the beginning of Lyft’s public journey and quickly walk everyone through the numbers, if that makes sense.
Kate Clark: Yeah, definitely. I mean, let’s just, going all the way back to the beginning. I think it was December when they filed confidentially to go public and that’s when this whole journey began of sort of keeping watch for when they were going to unveil their S-1 filing, which really lets us in and shows us all their financials. And that’s what we were really pouring through these last couple of weeks.
Alex Wilhelm: Yeah. And if you recall back then, when Lyft did file privately, Uber jumped in, I think it was the next day. So all of a sudden it was bam, bam off to the races and then almost a bit of quiet, towards the very, until the very end of Q1 in March.
And then we got the first Lyft filing and eventually they told us they were going to shoot for a price range of 62 to $68 in that second S-1, sorry, first S-1A, after the S-1 filing, and it was going to be 30.8 million shares and a 4.6 million share green shoe. And then as we reported after that, there was a lot of demand and they were oversubscribed very quickly. And so the speculation became even that they were going to price a bit higher and that came to be later on.
Kate Clark: Yeah. And actually you mentioned Uber filing confidentially just hours after Lyft. And I had seen something on Twitter yesterday that I thought was pretty funny. Somebody was like, if Travis Kalanick still ran Uber, Uber would’ve dropped their S-1 on Thursday. So like right when, right when we were all anxiously waiting for Lyft to price their shares, like Travis would have just dropped the Uber S-1. Which I mean, I don’t really know what the point of that would have been, but it would have been pretty hilarious had he done that.
Alex Wilhelm: It would have been full of spite and that would be the Travis Kalanick way historically, given what we know about him. Again, I’ve only ever met him once for like two minutes. So I don’t have a good read on him myself.
Kate Clark: Okay. Where did we leave off? So final price was $72. That’s what they priced on Thursday night. So they priced top of range and then they came out this morning trading, well this morning actually they were a bit late. It was noon eastern that they finally debuted, and they debuted at $87.24 per share, which is a pop of 21%. So they traded, they opened traded significantly higher than what they priced on Thursday night.
Alex Wilhelm: Yeah. I think that was not a shocking thing. I think two things come into play here. First, I think some people thought Lyft was going to price higher than 72, no one thought it was gonna get to 80 based on the rumors, but I think 72 almost flat conservative. So to start at 87 felt pretty good and a 21% pop is not super dramatic. And adding to this, as we started to record, Lyft was back down to $80.88. So still up from its IPO price by a good, you know, 10 to 12%, but certainly not as high as it was.
Kate Clark: Yeah. Yeah, I’m curious to see where it ends up, or where it closes today. Dan Primack had tweeted, “If Lyft closes the day above its IPO price, but below its first trade, did it have a first day pop?” And I thought that was interesting. But I mean, we see this all the time where companies have a huge pop on the first day of trading. So it’s not like it’s abnormal for a company to have, even a 20% pop or whatever it may be. But it would be, I wonder if Lyft will be scrutinized if it ends up closing up significantly lower than its opening price.
Alex Wilhelm: You know what’s … Back in the earlier days of the show, Katie Roof and I used to argue a lot about IPO pops and what was good and what was bad, and kind of like the best way to think about this sort of thing. You never know kind of want to come out flat because then your IPO looks like a bit of a miss. You never want to drop because then you’ll look like a failure.
You want some pop but not too much because the argument is that if you go up too much in your first day, you probably left some money on the table you could have put onto your balance sheet, but at 20% pop and then ending the day at 10 to 12% seems healthy to me. I mean, I wouldn’t read too much more into it than a good day. Maybe I’m being too polite here, but that’s my feelings to it.
Kate Clark: Yeah. No, I think it’s healthy. But I noticed you said that nobody really expected Lyft to price at 80, and I actually, I think some people did. I mean, I was reading some analysts takes from Wall Street analyst who had sort of been estimating around an $80 price. So they were thinking like it would be, they would price significantly above range.
And as we sort of have talked about, I am a little bit surprised that they ended up pricing at 72 and not a little bit higher, and then given the huge pop, and I guess we’ll see how trading goes this next few weeks, but given that big pop, I think they should have actually priced a little bit higher.
Alex Wilhelm: I would agree … So, two thoughts on that. It’s a really good point. There were some people out there, I should have said, people that I trust aren’t expecting it to be at $80 a share more. Wall Street analysts are going to be a bit more bullish on the average, I think general, but I just don’t think there was that enough of an argument for it to be worth that much. I mean we just talked on the show yesterday, they came out this morning about revenue multiples and that sort of thing so I don’t want to repeat myself. But I think the argument gets tougher the higher you get. But certainly you want to end up at least 10% up. It looks like they’re going to do that.
To the Dan Primack point, they still went up on their first day, so I will call it a success. And you know, frankly a lot of IPOs we have seen in the last 24 months have been mispriced and have gone up like 60% of their first day or down 20%. This one seems pretty good. It gets a lot more scrutiny I think Kate, because it’s Lyft, but I don’t know, they raised, what was it, almost 2.7 billion with the green shoe offering, good for them. I mean, they got so much money on their balance sheet, they’re public now. Everyone’s happy. It’s a big public win, I … Brr.
Kate Clark: Yeah, you’re right. I mean I think it’s pretty hard to criticize and I know people want to, and that people, I mean Alex, you were just going … What’d you call it before we recorded, you called them a, was it garbage fire?
Alex Wilhelm: Okay. So Kate. The stuff we say before the show, is before the show. But for context, I was talking about Uber and now I feel like a jerk anyways. We were just discussing losses I think, and the pace they’re off and paths to profitability. And I made a rude joke about Uber, which is not public yet.
Kate Clark: Right, you said it was a garbage fire business. I think that’s what you called it.
Alex Wilhelm: I think it was trash fire, if we’re going to quote me.
Kate Clark: Sorry, yes, trash fire. Trash fire.
Alex Wilhelm: I would never say that on the record though, so you know, only for you I, and everyone else in the show. All right, let’s get me out of trouble by moving along towards what this bodes for the future for unicorns. This is the next question that’s on everyone’s mind. Lyft has done well, it has not stumbled, well mostly. I think everyone kind of agrees at least that far. So Kate, when you think about other unicorns that are looking to go public or maybe on the fence about going public in 2019, what does this mean do you think for them?
Kate Clark: Yeah. I feel like I’m going to spend the next few weeks really thinking, because we’ve got Pinterest and Uber, which are both going public and I think in April that’s the plan unless Lyft’s … You know, I think there is a lot riding on how Lyft’s stock performs because Uber of course, they have filed, but they don’t, they’re not required to actually IPO at any time. So they could put it off for months or they could even put it off till 20 if Lyft’s IPO stumbles or performs just terribly. I think we’re all expecting it to fare pretty well in the next year or so.
But as far as what this means, I think nobody knows yet. And I think Pinterest, and Uber, and Slack, and you know even Airbnb are watching closely right now to see like, hey, should we ride the wave? Should we ride this bull market wave? Should we go public right now? But there’s just, there’s so many companies that want to make that transition and I think you’ve got to imagine that demand will slip when there’s so many, but at the same time there’s so much capital and these companies have, oh not these companies, these investors have cash burning a hole in their pocket and they want to invest it somewhere.
Alex Wilhelm: Yeah. Maybe we should cut the unicorns into two groups. There’s the companies that have either profits like Zoom or a very obvious path to profitability like Pinterest. Then there are some companies that are historically high fat, high growth companies, but have a less obvious path to profitability. Uber for example, maybe Postmates we don’t actually know yet, we haven’t seen that S-1, but I think for the companies that are on a path to profitability or are already profitable, Lyft probably is a gentle push forward, probably a bit of a tailwind.
But for the companies that are highly unprofitable and are going to be valued on growth, probably a bigger push, a bit more help because of Lyft’s own increase in net losses year over year. So maybe it’s actually more of a bump for the companies that were a bit more risky and more growth oriented, and just kind of a nice push forward for the companies that are historically or traditionally more healthy. If you think about old school accounting.
Kate Clark: Right. So we got all these different companies and some of them are just blowing through cash, but then there’s companies like Zoom, which I think we’ve talked about a little bit on Equity already, and they are profitable already and they’re going to have a successful IPO and it’s a lot less of a, like a, Ooh, is this, is Wall Street interested in this? Like of course Wall Street’s interested in a high growth profitable business.
Alex Wilhelm: I mean, that’s like the most obvious collection of things. You know, it’s like a fast and heavy Metallica record. Oh No. What are People going to think? Like it’s going to go fine. Okay. So I think I want to touch on one more thing before we kind of look to the future and scoot away. Kate, did you see that Rolfe Winkler tweet that looked at the per share prices paid by VCs over time compared to the list price now?
Kate Clark: Yeah, I did.
Alex Wilhelm: Okay. So for people who don’t know, the reason you want to be a venture capitalist is that you can buy shares in a company when they’re literally worth cents, and then over time they get to become more valuable, and they go public at in this case, $72 a share. So going back in time, Floodgate for example, according to this Rolfe tweet, Rolfe’s the Journal I believe, he’s a great guy. Floodgate, a venture capital firm that I’m sure everyone’s heard of, bought its Lyft shares at 23 cents per and they’re not worth 80. That’s the kind of venture returns that you want to see, and that’s the sort of home run that pays for your investments in the companies that fail.
And then the list goes on a up to like, Andreessen paid apparently 4.25 a share, founders fund 2.10 and then Coatue, a much later investor paid about 10 bucks a share. But still that’s an 8x return at today’s share price. So it’s all pretty astounding I think.
Kate Clark: It is. And I actually don’t know the size, what the size of Floodgates fund was that invested in Lyft years ago, but I’ve got to imagine that they’ve returned the funds several times over because that stake, the stake that they have is worth like $120 million or something. And this is a seed fund, a very, very small fund. And I think that’s one of my favorite narratives of this Lyft IPO, has been just what a win it was for Floodgate, and I don’t know if you read the New York Times story about VCs pea-cocking and just like parading around their successes, but it did mention how Floodgate hired a firm to sort of help them garner press just around this IPO and how awesome was for them, which I mean, I thought it was pretty funny. I mean, it makes sense because they want people to know, like, Hey, look how great we are at our jobs.
Alex Wilhelm: Yeah. So that’s really funny.
I wonder if I was caught up in that outreach campaign. But you know what though, we joke about it, but points in the board are what matter. And in this case they crushed it. So kind of a polite hats off to Floodgate for being in a lucrative position today as we wrap up the week. It’s, I can’t knock it Kate.
Kate Clark: No, me neither. I mean, good for them, that’s a huge win.
Alex Wilhelm: Now, one more little doodad before we take off, which is that because Lyft went public today, they filed of course before, they went public in Q1, which to my understanding means they have to report their Q1 earnings in Q2. So instead of Lyft going public, say early in Q2 and then not doing earnings till it’s like inside of Q3, we should have a Lyft earnings report inside the next month or so, which I’m excited about, we’ll have a quick public report and then the question becomes does Uber go out before or after that? What does Lyft do after its earnings report? Et cetera. We’ll talk about that as it happens, but we will get more numbers from the right hailing giant pretty soon. And I think that’s going to be a real treat. I’m excited about it.
Kate Clark: Yeah, that’ll be fun. We should definitely do an episode of Equity when we get that first earnings report.
Alex Wilhelm: I wonder if there’s a maximum number of Equity episodes we can do in a month before we start getting emails from people telling us to shut up and go away.
Kate Clark: I know. Maybe we should find out how many of them.
Alex Wilhelm: I don’t know if I want to find out. All right. Well, we should wrap it up. It’s Friday everybody and we hope you have a fantastic weekend. Kate, thank you as always.
Kate Clark: Happy Friday.
Alex Wilhelm: Yes.
Kate Clark: Thank you. Talk to you next week.
Alex Wilhelm: Okay, bye everybody.