Losing the IPO Grip?

We have the benefit of working with over 100 brokerages and investment banks in more than 20 countries around the world. We help them communicate with and cover more than 480,000 individual clients at 70,000 funds and corporates in 173 countries. That gives us a unique macro view into the changes impacting the broader industry, and how all the participants are evolving.

Quite often I get the question: “So Blair, from your viewpoint, how do you think the industry is going to change over the next 5 years?” I really enjoy answering that question – partly because I love the intellectual challenge, partly because I enjoy the abstract thinking, and partly because it’s impossible to be right or wrong – the future is unknown.

However, one of the things I’ve been thinking about more and more recently is the opposite, famously coined by Jeff Bezos of Amazon; answering the question “what won’t change over the 5 years?

So, what won’t change in the capital markets? To provide a few of my high level thoughts, in 5 years, I believe:

  • Companies will still need to raise money to finance new initiatives, get investors and employees liquidity, and take risks

  • Investors will still be looking to invest their capital to earn a return, across a whole spectrum of asset classes, with the benefit of economies of scale

  • Governments will continue to borrow money to finance spending and investments, locally and abroad

  • Those three groups (and the others that come with them) will still need to be educated, connected, and facilitated, which will either be done through humans, technology, or a combination thereof

  • All the parties of the capital ecosystem will be looking to hit a certain ROI/ROE target – which means that as long as revenue pressures remain, cost pressures will remain

One of the reasons I’ve been thinking about this in particular was a recent article in the FT by Michael Moritz from Sequoia. He wrote an opinion piece titled “Investment banks are losing their grip on IPOs”. To me, it feels a lot like he’s missing the forest from the trees. Let me elaborate.

I have no disagreement with the thrust of his thesis that the vanilla IPO might be changing, morphing, or evolving. The process largely hasn’t changed in the last few decades, which means the timing is long overdue. There have been some headline grabbing direct listings recently (Spotify, Slack) that people herald as an end to the role of investment banks in taking a company public. I see it a different way though. I believe we’re simply seeing the process adjust as the broader industry adjusts, but we’re not seeing any fundamental changes to the underlying needs that originally drove said process and industry. Put another way, 5 years from now, companies will still be going public for the above reasons (raising capital, providing liquidity, etc.) but it might just look different. It might not be ‘going public’ at all, but they will still need to satisfy certain needs. That doesn’t mean investment banks will or won’t be key players in the process – it just means the process may be different.

To give a parallel view back to the technology world, there are so many similar stories where the medium of delivery or the appearance of the solution changed, but the underlying need remained and was still serviced, albeit in a different way, with potentially different players. Look no further than the above example of Jeff Bezos and Amazon. Industry pundits predicted the death of retail with the arrival of e-commerce, but we temporarily forgot that people still need to buy things. In fact, with all its efforts in ‘cashier-less’ retail, Amazon is arguably now the leader in physical retail as well as digital. Different solution manifestation, but same need. Retail as we know it is changing, but retail as we know it isn’t dead.

For another example, recall Facebook’s challenges with switching to mobile. The dominant platform changed (desktop to mobile) and genuinely threatened Facebook’s dominance – and I’m sure someone wrote “Facebook’s losing its grip on the social network,” but they ended up adapting, recovering, and moving on to greater heights.

In the words of Mark Twain speaking for every investment banker, “my death has been greatly exaggerated”.

Now don’t get me wrong, there are also lots of examples where the solution shifts (while servicing the same need) and the incumbents don’t adjust. Look at those on the other end of the physical retail shift – Sears, Toys R Us, Barneys, etc. – who didn’t adjust, and never recovered. The need from their customers was still there, they just weren’t in a position to effectively or efficiently service it.

So while I agree with the thesis that IPOs, along with the entire capital markets industry, is in the midst of a massive change, I strongly push back on the corollary that because change is afoot, the incumbent investment banks are in their twilight years and at the end of their life. If anything, the experience of satisfying those needs over the last few hundred years put those existing firms in a good place to address those continued truths, and come up with new solutions to evolving problems, if they are willing to embrace change and lead it themselves.

The death of the Capital Markets, Investment Banks, and Investment Funds is, in my humble opinion, grossly exaggerated. While the next generation of solutions may end up being delivered by new firms, or the incumbents, the problems they address solve fundamental issues and needs in our society, and are unlikely to change anytime soon. In channeling Jeff Bezos, I believe those issues will be the same long into the foreseeable future, but how they are solved, and the solutions, will be continually changing – and it feels like a new race is starting.

The only question now is, who will get there first?

In the coming weeks, we’ll continue to share our view on the Capital Markets Fintech, and Technology landscape. We hope to provide you with interesting perspectives and updates on new ways of thinking, new tools, and new approaches as the industry evolves. Please subscribe below to keep up to date.

Blair Livingston
Street Contxt

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LSE and Refinitiv

Who said August was quiet? It seems to be as busy as ever, with some interesting headlines coming out over the last few weeks. One big headline a week or two ago (that I’m sure everyone saw) was LSE potentially merging with/buying Refinitiv (you can read about it here). From our perch in the industry, I find it interesting for a few reasons.

First, it’s obvious that every exchange player globally now sees the twilight years of execution ahead, and are looking to diversify their businesses. It’s not that there is no money to be made in trading – there is – it’s more that there isn’t a lot of room for expansion (in the traditional sense) and there are limits to the growth potential. The world of execution is already carved up, and the foundations of various competitors are solid and almost untouchable.

It feels to me like all the exchanges are now looking for other ‘marketplace’ opportunities in the industry. Other areas that they can leverage their existing domain expertise against, but don’t have the constraints that exist on the execution side of the business (such as geographical, regulatory, etc.). Look no further than the NASDAQ purchasing Quandl a few months ago. NASDAQ is looking to build the ‘marketplace’ of alternative data, and who better to acquire than the arguable leader in the space. The advantage Quandl has is that unlike a traditional exchange, they have no hard geographic boundaries. They can engage with providers and clients in Canada, the US, UK, China, etc. Nothing is beyond the scope of their potential growth. Also no one ‘owns’ the alternative data marketplace – meaning it’s anyone’s game at this point.

For another example, look at SGX investing in SmartKarma. They’re trying to leverage the partnership to differentiate and empower their listings business, but also extend their reach beyond Asia. It makes complete sense – otherwise they would be limited to the growth in their local market. This way they can strive towards a global strategy.

When I look at the LSE buying Refinitiv, it seems to be the same long term vision with a different strategy. Build out a new marketplace, and look for strategic synergies with their existing marketplace (the traditional exchange business). Refinitiv is an information marketplace. They have a data terminal business, but more importantly, they have a communication network. That communication network represents a social network, which is in its very essence an information marketplace. With the combination of the two, the LSE can expand its footprint well beyond where it is now, but also begin working on a competitive information marketplace to those that are out there already. Why wouldn’t they give every company that lists on the LSE a free Refinitive terminal? Why wouldn’t they give preferential pricing on Refinitiv terminals to brokerages that trade a certain amount of volume on the LSE? Why wouldn’t they put crucial LSE data only on Refinitiv, creating a clear competitive advantage? Cross service subsidization and marketing is nothing new, and certainly not new to the capital markets.

The Exchange industry feels a lot like continental Europe a couple hundred years ago – some very powerful nation states who had essentially carved up Western Europe. However, once one of them started sailing for new lands and new territories, it became a forced opt-in for the rest. It feels that way now with the exchanges. The development and electronification of execution has largely been achieved. Starting with the advent of the FIX protocol in 1992 (it’s actually an interesting quick history, that you can read here), up to this day, we’ve seen massive advancement and change. Now, they are setting their sights on new opportunities to build out the next generation of marketplaces, be that social, alternative data, information, or a combination thereof.

My gut says this starts a race that pulls in all the global exchange/infrastructure players:  ICE/NYSE/SGX and others. They all need to decide what new markets they are going after (and what new marketplaces they want to build) and how they are going to enter them (build vs. buy). All those marketplaces will interact with and engage with their existing businesses in different ways, and I look forward to seeing the pricing model shake up. It’s hard to remember that the ‘maker/taker’ model only came about when trading went electronic – we’ll see what new pricing structures emerge from this wave of innovation. While the old world of trading definitely feels like it’s been settled over the last 25+ years, there are a number of new worlds opening – largely on the ‘communication/client coverage/knowledge management/data management’ side of the business – and they are all up for grabs.

Exciting times ahead!

In the coming weeks, we’ll continue to share our view on the Capital Markets Fintech, and Technology landscape. We hope to provide you with interesting perspectives and updates on new ways of thinking, new tools, and new approaches as the industry evolves. Please subscribe below to keep up to date.

Blair Livingston
Street Contxt

Read the previous Capital Markets Fintech and Technology Trends commentaries:

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Release Spotlight – Additional Opens

Additional Opens counts the number of times your email has been opened after the initial open. You can find Additional Opens in the Email Insights page next to the Opened column.

How to Use Additional Opens:

Your Additional Opens count is useful for prioritizing follow-ups. Multiple opens from a single contact are a great indicator of interest in your content, signaling a good time to follow up with that contact.

Pro Tip: You can sort your Email Insights page by the number of opens by clicking the Additional Opens column, giving you a data-driven call-list.

You can also use Additional Opens to gauge traction at a particular firm. When a contact shares your email internally, any opens from their colleagues will reflect in your Additional Open count for that email. An unusually high Additional Open count is a good indicator that your email has been forwarded internally at a contact’s firm.

Why Are My Opens so High? Many factors can contribute to an unusually high open count, many dependent on the browser or email client the recipient is using.


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