When Greg Wright headed corporate finance in London for Merrill Lynch in the early-2000s, it was a simpler time for equity capital markets. While this year has seen a string of cancelled UK IPOs, companies back then were quick to sign off on going public.
“Investment banking is very different from the heydays,” he says. “We structured a billion dollar IPO for British Telecom within 30 minutes.”
Wright worked for Merrill Lynch for the best part of a quarter of a century, leading its financial institutions group in Europe before becoming head of corporate finance for Europe the Middle East and Africa (EMEA) in 2000 until his departure in 2003. He went on to become CEO of ThinkEquity, a boutique investment bank that was later acquired by Panmure Gordon.
A career investment banker, and craft beer fan who sits on the board of Melvin Brewing in Wyoming, three years ago Wright took a radical career departure – leading a fintech start-up that is attempting to create a secondary market for trading shares of private companies.
Wright is president of Zanbato, a start-up that allows hedge funds, mutual funds, family offices and PE and venture capital firms to buy shares in private companies, predominantly technology firms that have resisted the lure of public markets. Employees with shares locked up in big tech firms are given a platform to turn them into liquid assets – Uber, SpaceX, Spotify and Lyft are all trading there.
“My first day here, I had to get my own paper, my own staples,” he says. “I realised that in a 25 year banking career, I’ve never put any paper into the printer. I was used to having the seemingly infinite resources of a large investment bank, and then had to do everything myself. It was a big shock moving from Wall Street to a start-up.”
Equity options have long been a selling point of working for tech firms, particularly if you get in at the ground level and the company ends up going public. Snap Inc’s $33bn IPO in March created a clutch of 20-something billionaires, while Twitter’s 2013 IPO made 1,600 people millionaires overnight.
Snap might have been one of the big ticket IPOs this year, but it was also a huge flop. Its shares are $15.75 at the time of writing, down from $27 at the time of its launch. Another prominent tech IPO this year, the $1.89bn floatation of Blue Apron, has also floundered – it’s trading at nearly 60% below its offer price.
Nonetheless, tech IPOs have picked up in 2017. There have been 294 technology IPOs globally this year, according to data from Dealogic, worth $33.4bn. This is significantly more than the $14.6bn raised last year the highest number since the banner year in 2014 when $60.4bn was raised through 216 deals. Will Connolly, head of technology equity capital markets at Goldman Sachs told a recent internet conference: "We've actually seen an acceleration in the number [of companies] that are considering putting themselves in a position to go public [in 2018]."
But Christopher Fenichell, the former head of the credit solutions group at Royal Bank of Scotland and current head of Europe at Zanbato believes that fewer companies are willing to tap the equity capital markets for funding. He says that the average company going to IPO now has a valuation of around $1bn and is ten years old. The size and maturity of companies going to market has been increasing over the past 20 years, he says.
“Deeply engrained structural regulatory changes in the US, combined with globalisation have meant private companies no longer have the need nor urgency to IPO as they can obtain funding and stay private longer free of the burdens brought on by going public,” he says.
In other words, tech firms are questioning whether going public is worth the risk. This means there are seemingly huge tech firms that remain as private companies, and thousands of their employees who are rich on paper, but who can’t unlock their money.
Zanbato believes it is providing a solution to this. Its trading platform, ZX, was launched in December 2016 and Fenichell says that it now has 150 companies on the exchange, 50% of which are worth less than $1bn. He says there are “multiple billions” of bids and offers on ZX, and “100s of millions of secondary share transactions”.
Although it has pitched itself as a fintech start-up, Fenichall says that its aim is to essentially be a trading platform for private markets, and it’s had to jump through all the regulatory hoops. “Our aim was and is to be the regulated venue solution for a growing need: the liquidity of private markets,” he says.
“This is a trading platform for sophisticated investors,” adds Wright. “We’re aiming to build something impactful that solves the liquidity problem in this fragmented market.”
Fenichall says that he and Wright are the “two old finance heads” that have joined up with younger Silicon Valley types. So far, the firm has raised over $20m in funding including a $500k investment from Asia VC firm Vickers Venture Partners in November. “Our team comprises of bankers, coders, developers and data scientists, most of whom are under 30 years old,”Fenichall says.
50% of Zanbato’s 35 employees work in engineering or product developments roles, with the other half in compliance, operations and business development.
Wright and Fenichall are also drumming up new business, and Wright says it feels like going back to his deal-making days.
“In banking, the normal career trajectory means that over time you work on fewer transactions, to deal with management and strategy issues,” he says. “The great thing about the new role is getting back to the transactions – you get your hands dirty, deal with clients. It’s as good as it gets.”
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