Venture capital king Frank Quattrone (the banker behind Amazon, Netscape and Cisco) has a message: IPOs have gotten too big, innovation is being stifled, exits are being delayed and firms need straight-forward advice, not Wall Street “casinos.”
“Wall Street no longer knows how to value,” he complained, during a breakfast talk before 500+ VCs and entrepreneurs at the San Diego Venture Group.
Over the past ten years, the average IPOs is 40 percent below its rollout price, noted Quattrone. Part of this failure is because of unsustainable trends driven by banker greed. This forces companies to artificially drive big profits and assemble “vertical stacks of technology” instead of focusing on what they might do really well. Citing Oracle’s acquisition of Sun as an example, he said “we’re going back to a world where companies want to do everything.”
It’s a far cry from the 1980s, when a focused company like Adobe could do well with a $5 million IPO handled by small banks such as Hambrecht & Quist. While all the big IPOs are being handled by monster banks today, there’s nothing wrong with using small banks, Quattrone added. “It’s like saying that if you don’t get into Harvard or Stanford, you are going to work in the coal mines.” In fact, he says, there are “plenty of great institutions.”
Quattrone, who recently overturned a conviction for interfering with a government probe into IPO allocation, said he’s through with banking and its broken system and wants t ore-enter the builder class. ”I’ve always been more of an entrepreneur than a banker,” he said (although there are few bankers in Quattrone’s $160 Million per year category).
His new 23 person firm, Qatalyst, will advise firms, including VC backed startups and “tweeners” earning between $1 billion and $1.5 billion per year. His hopes are to build stable relationships with the investment community, rather than the get rich quick mentality of recent years – and ultimately achieve a better track record of successful IPOs.
When eight of ten IPOs can be counted as successful, average financial advisers will be able to recommend them again, he said. “That’s the key for fund manager influence.” For now, they don’t go near them.
And yes, Quattrone is unrepentant: he still believes that technologically sophisticated bankers should get rewarded for their insights and perseverance with higher shares of IPO allocation than “know nothing” hedge funds. “Don’t be democratic in your allocations,” he said.