Amplitude begins trading directly on the Nasdaq

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

Andrew Kelly | AP

While Benchmark’s Bill Gurley has expressed a preference for direct listings over IPOs, his venture firm has had limited success in getting its own portfolio companies to take this route into the public market.

That may be starting to change. On Tuesday, the provider of analysis software Amplitude made its debut on the Nasdaq through a direct listing. Rather than raising fresh capital at a discount, the company allowed existing investors to sell shares at a market-clearing price.

Amplitude is only the second direct listing from the Benchmark portfolio. Asana, the collaboration software company led by Facebook co-founder Dustin Moskovitz, was the first a year ago.

“I think we will see more deals in our portfolio and more generally,” said Eric Vishria, partner at Benchmark and board member of Amplitude.

Amplitude’s shares opened at $ 50 and rose more than 9% to $ 54.80, giving the company a fully diluted market cap of approximately $ 7.1 billion. Benchmark, the largest investor, owns 15% of the company with a stake worth over $ 835 million at close.

The direct listing trend started with the music streaming app Spotify in 2018. Slack followed in 2019, and Palantir and Asana were the notable names of 2020. This year there were at least six direct listings, including from Coinbase and Roblox, while Glasses The company Warby Parker should also be listed directly this week.

Gurley has bravely advocated this approach on television, on Twitter, and on his own blog, arguing that the IPO process is permanently broken and that it is a move of cheap shares of companies to Wall Street. He repeated that sentiment in a Tuesday interview with CNBC’s Squawk Box.

“As I have mentioned many times, the old IPO process has become this process where huge one-day profits are transferred from the investment banks to their trading clients,” said Gurley. “There is a modern way of doing this. You can actually use supply and demand to determine prices and allocations, and that is exactly what direct listing does.”

The early pivot

Amplitude was originally called Sonalight. In 2012, the founders presented their product as part of the Y Combinator demo day. They introduced a Siri-like app for Android phones that allows users to send text messages by voice.

The Sonalight team has also developed software to watch how people interact with their app. Other startups have expressed interest in this technology, according to TechCrunch. It’s a narrative that will look familiar to anyone who has followed the early days of Slack, which was designed as an in-house messaging tool for a start-up that originally focused on developing online games.

Sonalight gave birth to Amplitude. The founders went through Y Combinator a second time in 2014 and won a check from Vishria on Benchmark.

Vishria describes Amplitude as a “moneyball” for product development, referring to Michael Lewis’ 2003 book about Billy Beane, General Manager of Oakland A, and his use of unconventional statistics to create the best baseball team possible on a budget.

Amplitude CEO Spenser Skates and co-founders Curtis Liu and Jeffrey Wang focused on refining an app or website by measuring activity at every step so product teams can make adjustments that could lead to more desirable results.

Over time, Amplitude has become a tool for various areas of business operations, such as: B. Marketing and Support. Disney and Walmart signed up as customers, even though Amplitude had to compete with analysis software from heavyweights Adobe and Google.

Like software companies across Silicon Valley, Amplitude hit a terrifying catch in the early days of last year’s pandemic as companies quickly cut their spending. Costs rose and sales growth did not keep pace, according to the Amplitude prospectus.

Benchmark’s advice was to prepare for a variety of scenarios.

“The only thing we didn’t plan in this early stage was, ‘Oh my god, this will totally increase the importance of digitization,'” said Vishria. “Everything will actually accelerate.”

Revenue in 2020 increased 50% year over year to $ 102.5 million and the company’s net loss decreased. Growth has accelerated this year, with second-quarter revenue increasing 66% to $ 39.3 million.

“Don’t just invent something”

Skates began looking for direct deals in 2019, around the time Gurley began publicly advocating for companies that chose this option.

Skates attended an event that Gurley hosted in San Francisco to educate venture capitalists and founders about the mechanics and benefits of direct listing.

“I think a lot of the qualities or traits or traits in the direct listing really appealed to him,” Vishria said of skates. “I think that many of the founders of technical mechanical engineering like the way they are clean. The stock will be opened, we will bring buying and selling together, we will achieve a fair price. You are not just inventing something.”

After the event, Skates researched the process and spoke to other board members about it. He said there was no general agreement but everyone said they would support him either way.

A director, Neeraj Agrawal of Battery Ventures, said he was backing an IPO after taking that path with Coupa, Nutanix, and others. But ultimately, Agrawal realized that there wouldn’t be much of a difference among long-term shareholders, and estimated that there was less dilution for existing financiers.

“It was really clear to us that IPOs are traditionally undervalued, and not by multiples – hundreds of millions of dollars on average,” Skates said. “As a trustee of our current shareholders, doing them badly is just totally unacceptable.”

Agrawal called it “a turning point for direct entries into my world”.

Amplitude sold some shares at an IPO discount earlier this year. In early May, the company raised $ 200 million and sold shares at $ 32.02 apiece. At the close of trading on Tuesday, buyers including Sequoia and Battery were up 71% in just a few months.

However, one of the main advantages of a direct listing is that existing shareholders, especially employees, are not locked up and can start selling stocks right away instead of watching the company roll out stocks to new investors who can trade immediately.

“Public market funds – they don’t need money. They are the richest people in the world, ”said Skates. “They’ll be fine. You have to give it to your shareholders.”

SEE: Bill Gurley praises the direct listing of capital


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