Morgan Stanley has served as the lead underwriter for Facebook, Spotify and Slack. Grimes, a banker for 32 years — 25 of them with Morgan Stanley — has also played a role in the IPOs of Salesforce, LinkedIn, Workday and hundreds of other companies.
Because some of these offerings have gone better than others, buzzy startups and their investors are asking Morgan Stanley and other investment banks to embrace more direct listings, a maneuver pioneered by Spotify and copied by Slack — rather than sell a percentage of shares to the public in a fundraising event, companies essentially move all their stock from the private markets to public ones in one fell swoop.
In a rare public appearance last week, Grimes told us why he supports direct listings and answered questions about other offerings in which Morgan Stanley has been involved, including as a lead underwriter for both Uber and Google. (He was less talkative about WeWork, a company that Morgan Stanley managed to distance itself from at exactly the right time.) If you care about how the process of taking private companies public may be changing, it’s worth the time. Our conversation has been edited lightly for length.
TechCrunch: Tell us about yourself. You were born in East L.A.; you studied computer programming and electrical engineering at UC Berkeley, then you became a banker, and you’ve remained one. Did you always want to be a banker?
Michael Grimes: I’ve only ever done this since i was 20. I’d joined Solomon Brothers, which later became part of Citigroup. They had a tech group where they wanted somebody in tech. I didn’t know banking or business or finance, because I had studied engineering and that made me not well-suited, to some degree, [for a bank] other than for a tech bank. Mary Meeker also started in ’87 at Solomon and [we then worked together for 20 years at Morgan Stanley until she left].
The work you’ve done with a lot of these amazing companies that you’ve helped take public has earned you a lot of nicknames — the ‘Teflon banker,’ the ‘kingpin’ banker. How do you feel when you see yourself described in those terms?
It may sound boring but may be similar to the way venture capitalist serve founders. Besides capital, they’re giving advice. We think of it as giving advice: that decision to file, do you or don’t you, how will it be received. That decision may work out for the best. There’s a lot of volatility in the market and it may not. But we want to stick with clients through thick and thin and help them navigate really volatile markets.
When a company is [at an] emerging growth [phase] but hasn’t reached a mature business model, you can have a really wide variety of fair cases for, is this going to be worth $30 billion in five years? $3 billion? $200 billion? Those could are all possible if something is growing 100 percent per year and the margins are increasing and you can do the math. [Remember that] Google has gone from $30 billion when we took it public to $800 billion or $900 billion or whatever is it [now]. So is this going to be that, or is this going to grow and peak and recede? There’s a huge amount of volatility inherent in tech investing, and that kind of comes with the territory in our business.
People seem to speak in hushed tones about you the way they earlier spoke about [earlier Silicon Valley banker] Frank Quattrone, but Frank Quattrone had a reputation for taking on deals that others wouldn’t take; you have a reputation for saying no to deals when they don’t feel right. When is a company in shape to go public?
We try to predict the receptivity of the public markets, which does change. There were times in 1999, 2007, maybe 2015 until recently, where institutional investors were taking more risk, then there are other times when they’re taking less risk: 2001, 2002, maybe now to an extent; they’re taking less risk than they were a year ago.
The institutional investors are the price setters; if they’re eager to invest in a company, then we try to predict that and get behind the companies that we think will work well there, or [else] give the company advice that this maybe isn’t the right time or maybe this won’t be well-received. We aren’t perfect at this but we kind of obsess about it.
You’ve told me that you think the more established the company, the more observable its metrics, the less volatile the offering in all likelihood. But can a company stay private too long?
It depends on what you mean by “too long.” If they run out of capital because they aren’t financeable, you could argue that’s probably a good thing that they never went public, because investor protection matters. Healthy markets depend upon investors, on balance, earning a return — not just institutions but retail investors, the ordinary investor. So if it turns out it’s a company that thrives but went public later, there’s no real harm there… I haven’t really bought into the theory of companies waiting too long to go public. That’s their choice. They have to decide based on their capital. Going back to the late ’80s or ’90s, I’ve worked with companies that have gone out with $300 million, $400 million, $500 million valuations; I’ve worked with ones that have gone out at $30 billion, $40 billion, $100 billion valuations. In all cases, it really depends on the company’s fundamentals and performance as opposed to its stage.
You mention companies that aren’t financeable. It brings to mind WeWork. Obviously its S-1 was disaster, but it also really needed the money from an offering. Could things have gone another way for the company? Was there a way for it to go public?
We weren’t involved in that filing so I’m probably not the right guy to opine on that situation.
Do you think JPMorgan deserves all the heat it’s gotten for that situation?