Stock Groups

Amplitude starts trading on Nasdaq in direct listing


Amplitude CEO, Spenser Skates, in Times Square after ringing the opening bell at NASDAQ headquarters on Tuesday, Sept. 28, 2021 in New York.

AP Despite his vocal support for IPOs and his desire to have more control over his portfolio, Benchmark’s Bill Gurley is not a fan of his venture company’s success at getting their companies onto the public markets.| AP

As vocal as Benchmark’s Bill Gurley has been about his preference for direct listings over IPOs, his venture firm has had limited success in getting its own portfolio companies to choose that route to the public market.

This may soon change. On Tuesday, analytics software vendor Amplitude debuted on the Nasdaq through a direct listing. The company did not attempt to raise capital at a steep discount but instead allowed investors to buy shares at market-clearing prices.

Benchmark has only just listed Amplitude. Asana, the collaboration software company led by Facebook co-founder Dustin Moskovitz, was the first a year ago.

Eric Vishria is a Benchmark partner, Amplitude board member and said, “I believe we’ll have more deals within the portfolio, as well as more generally.”

Amplitude shares started at $50. They rose more than 9.9% to close at $54.80. The company now has a market value of $7.1billion on a fully-diluted base. Benchmark holds 15%, or $835m, of the company.

The direct listing trend began with music-streaming app Spotify in 2018. Slack followed in 2019, and Palantir and Asana were the notable names of 2020. This year, there have been at least six direct listings, including by Coinbase and Roblox, while eyeglasses company Warby Parker is also set for a direct listing this week.

Gurley has boldly advocated for the approach on TV, Twitter and his own blog, arguing that the IPO process is permanently broken and that it amounts to a handover of cheap stock from companies to Wall Street. In a Tuesday interview, Gurley reiterated this sentiment on CNBC’s SquawkBox.

Gurley stated, “I’ve said many times that the legacy IPO process had devolved into this where enormous one-day gains were transferred from investment banks to trading clients.” It’s possible to modernize the process. Direct listing allows you to use demand and supply to decide price and allocation.

The early pivot

Amplitude was initially called Sonalight. The founders presented their product to Y Combinator in 2012 as part of the demo day. The founders were showing off a Siri-like Android app that allowed users to send voice text messages.

Sonalight developed software to monitor how their users were using the app. Other start-ups expressed interest in that technology, according to TechCrunch. It’s a narrative that will sound familiar to anyone who followed the early days of Slack, which was created as an internal-messaging tool for a start-up that was originally focused on developing online games.

Amplitude was created by Sonalight. In 2014, the founders participated in Y Combinator again and were awarded a check by Vishria at Benchmark.

Vishria refers to Amplitude’s product development as “Moneyball”, and cites Michael Lewis 2003 book, which details the use of unusual statistics by Billy Beane in assembling the best possible baseball team with a limited budget.

Spenser Skates, Curtis Liu, Jeffrey Wang and Jeffrey Wang were the founders of Amplitude. They focused their efforts on improving an app and website. This was done by measuring how active users are at each stage so that product teams can make improvements to improve results.

Amplitude grew to be a useful tool in many aspects of an organization’s business operations such as support and marketing. Disney and Walmart signed on as customers, even as Amplitude had to compete with analytics software from heavyweights Adobe and Google.

Amplitude was a similar software business to Silicon Valley. Companies cut spending quickly and Amplitude ran into a scary snag during the first days of last year’s pandemic. Costs mounted and revenue growth didn’t keep up, according to Amplitude’s prospectus.

Benchmark advised that you prepare for all possible scenarios.

Vishria explained that one of the things we did not plan for was digitalization. Everything is actually going to accelerate.

In 2020 revenue grew by half to $102.5 million from last year, while the net loss was reduced. The company’s revenue has increased 66% this year to $39.3million.

‘Not just making something up’

Skates started looking at direct listings in 2019, around the time Gurley began publicly advocating for companies to choose that option.

Skates attended an event that Gurley held in San Francisco, educating venture capitalists and founders on the mechanics and benefits of direct listings.

Vishria expressed his admiration for Skates, saying that he found a lot of the characteristics or qualities and features associated with direct listing appealing to him. It is a common characteristic among technical engineers that they love the cleanliness. Stock will open soon. We are going match buy and sale, so we can get fair prices. Skates isn’t just making up something.

Skates did some research and spoke to other members of the board about the whole process after the event. Although there was not universal agreement on the matter, he said that they were all in favor of him.

One director, Neeraj Agrawal of Battery Ventures, said he supported an IPO, having gone that route with Coupa, Nutanix and others. Agrawal realized, however that the IPO would not make a huge difference for long-term shareholders and that there would be less dilution to existing backers.

“The thing that was really clear to us is IPOs traditionally underprice companies, and not by a little bit, by a lot — hundreds of millions of dollars on average,” Skates said. As a fiduciary for our existing shareholders, it is completely unacceptable to provide them with a poor deal.

Agrawal described it as a “watershed moment” for direct listing in his world.

Amplitude sold stock this year, at what amounted IPO discounts. Beginning in May, the company raised $200 million, selling shares at $32.02 a piece. The buyers (Sequoia and Battery) had seen 71% growth in the past few months.

Direct listing has the advantage that employees and existing shareholders can sell stock immediately. Instead of waiting for the company to hand shares over, they can do so right away.

“Public market funds — they don’t need money. Skates claimed that these people are among the most wealthy in the world. It will be okay. Your shareholders must be given it.”

WATCH: Bill Gurley praises raising capital through direct listing