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Why Wall Street and Silicon Valley Are Going to War Over IPOs—Data Sheet

September 26, 2019, 12:57 PM UTC

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Years ago, I learned of a certain substrata of Silicon Valley investment bankers whose sole function was to cozy up to venture capitalists. It was worth the effort. VCs are the primary owners of startups and, therefore, the decision makers when it comes time to choose bankers for an initial public offering.

Now that coziness has given way to near-open warfare by the VCs on the banks.

At the heart of the dispute is the IPO process itself. How does an IPO work? Banks underwrite an IPO, meaning they guide the process from start to finish, buying newly-issued or already-outstanding shares from the startup and then selling those shares to their stock-market-investing clients. They charge a hefty fee: traditionally 7% of the value of the shares sold. VCs always resented the fee, but couldn’t do much about it.

Then the “direct listing” came along. How does a direct listing work? In that case, which is how Spotify and Slack went public, a company simply places existing shares in the public domain and lets them trade. All the banking hocus-pocus of matching orders and advising on a price isn’t needed. As Michal Lev-Ram recounts in an article about the trend, VCs are banding together to encourage startups to bypass the bankers. They’re even holding a one-day, private symposium on the subject Oct. 1 in San Francisco. The targeted audience is chief financial officers for pre-public companies.

Bankers claim to be unfazed by the development. One unnamed male banker in Lev-Ram’s article makes the profoundly awkward comparison between direct listing and IPOs, on the one hand, with natural childbirth and Caesarian section delivery on the other: The end result is a healthy public company (baby). (Note to bro bankers: Don’t ever compare your work to the birthing process.)

Bankers are a slippery lot. They’ll throw a ton of FUD at startups who don’t have the market power of an Airbnb or Stripe. They’ll at least partially succeed. But their backs are up against the wall.

***

Earlier in the year, I encouraged you to read Billion Dollar Whale, the gripping account of the Malaysian 1MDB scandal written by two Wall Street Journal reporters. It was difficult then to get a copy of the book in the United Kingdom, where a “reputation management” and law firm called Schillings was threatening book distributors and booksellers with litigation if they sold the book there. Everyone, even renegade financier Jho Low, is entitled to legal counsel. But Schillings should be ashamed for preventing a book of impeccable reportage from being published. Months ago, I called Schillings, whose services include helping with “media intrusion” and “fake news,” for comment. No one called back. The good news is that despite continued harassment by Schillings, the book has found a new publisher, which has emboldened U.K. distributors and booksellers to sell it to the reading public. Cheerio!

Adam Lashinsky

On Twitter: @adamlashinsky

Email: adam_lashinsky@Fortune.com

NEWSWORTHY

Meet the new boss, same as the old boss. Fallout from the week's explosive CEO departures continued to spread across the tech landscape. At the company formerly known as WeWork, new co-CEOS Artie Minson and Sebastian Gunningham are looking at layoffs and divestures to bring the money-losing venture into line. At eBay, it's become clear that Devin Wenig's resignation was due to continued pressure from activist investor Elliot Management, even though it has been months since the two sides seemingly struck a deal. Wonder how that news went over in AT&T's executive suite?

Take a bow for the new revolution. As expected, Amazon unveiled a plethora of new Alexa-connected devices on Wednesday. Better speaker, check, better screen, check, better earbuds, check, better glasses–wait, what? And don't forget the finger ring or the convection oven. Plus, Samuel L. Jackson's voice in your kitchen (with swears or without). It's a big world out there. Check out our "hand's on" with some of the new bits. At the same time, Facebook held a developer conference for its Oculus VR gear and announced hand-tracking, coming next year, will do away for the need for cumbersome controllers.

Smile and grin at the change all around. The Federal Trade Commission on Wednesday sued dating site Match.com, saying it forwarded scam contacts to free trial users while blocking those same scammers from contacting paying members. “Online dating services obviously shouldn’t be using romance scammers as a way to fatten their bottom line,” FTC official Andrew Smith said. Match said it would "vigorously defend" itself in court.

We don't get fooled again. The world of tech was drawn into the world of Trump conspiracy theories on Wednesday when it turned out the president thought there was some connection between market-leading cybersecurity firm Crowdstrike and the Ukraine. "I would like you to find out what happened with this whole situation with Ukraine, they say Crowdstrike…,” the president mentioned to his Ukrainian counterpart in the infamous July 25 call, according to the memo released by the White House.

The change it had to come. Trailing nearly all of its rivals, fast food giant McDonald's said on Thursday it would start a 12-week test of serving a non-meat burger from Beyond Meat at 28 of its restaurants in Ontario, Canada. Shares of Beyond Meat, which have risen more than fivefold since its (traditional) IPO in May, jumped another 20% in premarket trading.

Then I'll get on my knees and pray. Speaking of premarket trading and traditional IPOs, exercise and media (?) startup Peloton and its bankers priced its shares at $29, the high end of the expected range and valuing the company at over $8 billion. Trading starts later today on the Nasdaq under the symbol PTON.

Meet the new boss, same as the old boss. Also, we're growing. Read about the latest folk whose Fortune bylines you will no doubt start seeing here (for some of them, just check our links below).

(Video headline reference explainer if you need it–or in case you just want to rock out.)

FOOD FOR THOUGHT

One of the most serious and damaging challenges for Uber is keeping all its customers safe. So the company has created an 80-person team based in Phoenix, dubbed the Special Investigations Unit, to review allegations and incidents, with the power to ban potentially bad drivers. But as Greg Bensinger reports for the Washington Post, the SIU employees are constrained by the company from helping too much:

When they make a determination, the SIU investigators are coached by Uber to act in the company’s interest first, ahead of passenger safety, according to interviews with more than 20 current and former investigators. Uber has a three-strikes system, investigators said, but executives have made exceptions to keep drivers on the road. For instance, a New York-area driver allegedly made three separate sexual advances on riders, said an investigator assigned to the case. After an executive overruled the investigator, the driver was allowed to continue working until a fourth incident, when a rider claimed he raped her.

IN CASE YOU MISSED IT

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A.I. Security Cameras Are the Latest High-Tech Attempt to Combat Mass Shooters By Bernhard Warner

Apple Arcade vs. Google Play Pass: Which Will Score More Points With Gamers? By Lisa Marie Segarra

Real Estate Tech Startup Cadre Hits $100M in Investor Returns with Chicago, Atlanta Property Sales By Rey Mashayekhi

Dropbox Wants to Soar Beyond Cloud Storage and Help Put People on Mars. But First: It’s Releasing a Desktop App By Jonathan Vanian

Thiel-Backed Investment Fund 1Confirmation Raises $45 Million for Crypto Bets By Jeff John Roberts

Facebook’s Big Hopes in Augmented and Virtual Reality Face Even Bigger Obstacles By Danielle Abril

BEFORE YOU GO

Is this really a thing? A woman at a wedding ate a whole spoonful of wasabi, mistakenly thinking it was avocado. This gave her such chest pains that she sought medical attention and was diagnosed takotsubo cardiomyopathy, or “broken heart syndrome.” Seems that the pain and stress of a failed relationship can make some people vulnerable to heart problems in their, you know, actual hearts. Another guy got it from eating sago worms. Maybe it's better not to be the early bird in some cases!

This edition of Data Sheet was curated by Aaron Pressman. Find past issues, and sign up for other Fortune newsletters.