Morgan Stanley vs. Texas Longhorns – which one drives the economy?

WSJ reported today that Morgan Stanley was king of the tech IPO world and they had topped the underwriter charts with $115 million in revenue.  That’s good news?  Is this a sign of health in the Tech IPO world?  I spent many years leading lots of IPOs at Robertson Stephens, and we were a small firm compared to Morgan Stanley, but $115 million would have been a bad year.Put in more current perspective, if Morgan’s tech banking group was a college football team, it would have about tied the University of Texas for the top spot on the 2011 revenue chart.  Those bankers can take some comfort that the “Deutsche Bank Goffers” would have ranked 11th – just ahead of the Oklahoma Sooners – and the lowly “Goldman Sachs 49ers” would have come in at 16th barely tied with the Hawkeyes of the University of Iowa.  Tech IPO banks and NCAA football teams have much in common – they both use cheerleaders to distract and arouse the crowd and they both rely on a passionate fan base whose enthusiasm often belies reason.  However, the real point of this comparison is to comment on relative relevance to the economy.Like football, innovation is the lifeblood of the American way of life.  In recent times, the pinnacle for innovative enterprises is completing a wildly successful initial public offering, which has the dual benefit of commercial credibility and marking the company at its “true” valuation.  So, what does it mean when our kings of IPO underwriting have shrunk to the size of college football programs?  If the IPO market was still the real source of capital and liquidity and reputational swagger for tech companies, this would be a sign of real concern.  But this is no longer the case.In 2011, US IPOs provided about $9 billion to tech companies.  The bulk of growth capital investment – over $30 billion – came through the private transactions you read about in places like PE Hub.  These private deals were larger, provided better shareholder liquidity and were often at higher values (Groupon or Zynga ring a bell?)  So, shrinkage in the IPO market is no cause for alarm as the capital is still flowing to companies that drive our economy.  It’s just not via the path that requires a company to increase its D&O insurance, watch its audit fees triple and run consecutive 90 day sprints.Of course, IPOs for larger established companies continues to thrive and for larger tech companies like Facebook, there is always a window.  But for those companies who haven’t found their way to the private capital markets and find themselves stuck in the long-term IPO pipeline – perhaps an application for Title IX funding?

Posted on January 26, 2012 in Insights, Technology Industry