The huge pops during recent market debuts have proven that the traditional IPO process has only gone downhill, Benchmark’s Bill Gurley said Tuesday.
“The IPO process has gotten worse rather than better over the past five years,” Gurley, who led the company’s investments in companies like GrubHub and Zillow, said in an interview on CNBC’s “Closing Bell.” Gurley pointed to DoorDash and Airbnb, which skyrocketed 86% and 112% during opening days earlier this month, calling the jumps “bizarre.”
“The bankers convinced everyone that you just wanted to meet a handful of investors and then they used this phrase, you can ask them, they told everyone they wanted to be 30 to 50 times oversubscribed,” Gurley said. “If you only think of the basic economy of supply and demand, who in their right mind would choose to be oversubscribed 30 to 50 times? And they looked at you with a straight face and told you that was the goal. “
The public offers rekindled a debate around traditional IPOs, with critics looking at the money still on the table. Last week, Verishop CEO Imran Khan said the public debuts showed extreme incompetence from their investment bankers. CNBC’s Jim Cramer has also criticized investment banks for failing to properly take into account the “new cohort” of younger investors when pricing IPOs.
Companies that go public through the IPO process pay hefty fees to insurers so that new shares can be created and sold to the public. However, Gurley is strongly opposed to the standard initial public offering of an IPO and says new offerings are consistently undervalued.
IPO critics took a victory Tuesday after the Securities and Exchange Commission approved the New York Stock Exchange’s direct listing plan, which allows companies to go public without paying hefty fees.
“I don’t have to complain about it anymore because it’s over, we just have a whole new solution,” Gurley said of the NYSE announcement.
Subscribe to CNBC on YouTube.