The Direct Listing Craze

Guest post by Cooley GO

2019 marked the rise of the Direct Listing. Though they are not exactly new structures, following the heavily-publicized Direct Listings of tech giants Spotify and Slack, they have captured the imagination of the capital markets world. Venture capitalists love them. CFOs are intrigued by them. Bankers want to hang out with them. Securities lawyers are fearless of them. And, accountants, well, they mostly roll their eyes at them. They are everywhere. Howling in the hills, whispering in the wind, psst!’ing from hastily revised pitch books. If you want to get into a Direct Listing seminar, you have to call on Tuesday morning between 9 and 9:15 am, at least a month out. The point is that Direct Listings are kind of a big deal.

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Dual-Track Processes: How to Turbocharge Your Exit

Guest post by Michal Berkner, Josh Kaufman, James Foster from Cooley M&A blog

Exiting an investment is an inherently uncertain process. Even for a thriving business with a viable equity story, committed stakeholders and the right advisers, the final deal terms and valuation are typically guided by factors beyond a company’s control. These include prevailing market sentiment, current appetite for acquisitions in a particular sector and the political and economic environment, all of which can change well within a given transaction timetable. In the face of a global economic slowdown, ongoing trade wars, Brexit, heightened market volatility and other sources of uncertainty, it is becoming increasingly important to consider how deals can be run to maximize transaction certainty and achieve optimal valuation.

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New Prime Unicorn Index Tracks Private Companies on the Road to IPO

Index uses Lagniappe Labs’ proprietary valuation and pricing data to track top-tier, private companies with Unicorn or near-Unicorn status

SHREVEPORT, La.–(BUSINESS WIRE)–Lagniappe Labs has launched a new, equally-weighted price return index that tracks the performance of some of the most notable privately-funded companies based in the U.S. In partnership with Prime Indexes, Lagniappe Labs created the Prime Unicorn Index as a tool to benchmark the aggregate performance of private companies who have achieved or are approaching the $1 billion valuation level. The index uses Lagniappe Labs’ proprietary research and difficult-to-source, objective data to determine true valuations of privately-funded companies in a measureable and verifiable way.

Unicorns like Uber, AirBnB, Lyft, SoFi and WeWork are well-known to investors as private companies with valuations in excess of $1 billion. While there are over 200 Unicorn companies across the globe with a combined value of over $730 billion, the Prime Unicorn Index currently includes 85 companies Lagniappe Labs has classified as a Unicorn or Approaching Unicorn based on hard-to-secure public filings and data, including federal and state filings and company disclosures. The index universe will include only U.S.-based private companies with valuations at or exceeding $500 million.

“Valuations of private companies do not need to be subjective or opaque, and in fact, an official valuation can be derived when using the right data,” explains Ross Barrett, Co-Founder of Lagniappe Labs and founder of the Prime Unicorn Index. “We differentiate ourselves in our data standards and practices by using difficult-to-access information to assign an official value to these private companies that is not available anywhere else.”

As more high-performing companies defer or eliminate plans to go public, the demand for information about and investment exposure to this growing portion of the American economy has soared. The Prime Unicorn Index aims to offer investors a means to evaluate the private company space before these highly-valued firms go public.

“In today’s market environment, there is tremendous opportunity and investor interest in the private company space. However, there is very little in terms of concrete, trustworthy information for investors to act on,” explains Kris Monaco, Co-Founder of Level ETF Ventures and the firm’s related Prime Indexes business. “The companies in the index are the same businesses modern investors are using and touching on a daily basis. They are riding Uber to work, using AirBnB to book their next vacation and taking advantage of WeWork spaces to run their small business. There is a great deal of interest in these companies, and the Prime Unicorn Index is designed to help capture that enthusiasm.”

The index will serve as a benchmark for performance and valuation among private companies and for the creation of financial products. Index values are calculated daily and distributed weekly. The index will be rebalanced quarterly to reassess companies whose values may have fallen below Unicorn status or those who have gone public.

“The Prime Unicorn Index is to private companies what the S&P 500 Index is to publicly-traded companies,” adds Barrett. “We believe investors will look to the index as a way to determine the strength and overall value of private companies where they’re seeking exposure.”

For more information, please visit or contact

About The Prime Unicorn Index

The Prime Unicorn Index is an equally-weighted price return index that measures the share price performance of U.S. private companies valued at $500 million or more. The Index was launched by Lagniappe Labs and Level ETF Ventures. The index uses Lagniappe Labs’ proprietary research and difficult-to-source, objective data to determine true valuations for privately-funded companies in a measureable and verifiable way.

About Lagniappe Labs

Lagniappe Labs is a financial technology company specializing in the development of financial products and trading software for alternative investment professionals. The company has compiled millions of data points on privately funded companies using disparate data sources, providing investment professionals with detailed analysis of private company valuations, share prices, and securities sold.

About Prime Indexes

Prime Indexes creates financial indexes that solve problems for both professional and self-directed investors. Our index designs focus on emerging trends in the exchange-traded fund (ETF) industry, and our founders have participated in the creation and launch of over a hundred financial products and indexes across all major asset class. Prime Indexes are used as the basis for innovative new investment solutions for investors, and use intuitive design principles so that new investment products can ultimately provide low-cost, efficient, and convenient access.


Gregory FCA for the Prime Unicorn Index
Marissa Foy Comerford, 610-228-2104

So You Want To Raise Capital

Mary Jones, a biochemist, has stumbled across an interesting piece of science and has been given the opportunity to license the same by the university for which she works, for a nominal up-front fee, an ongoing royalty, plus a gratis equity position in the company. The principal condition of the license is that the science be exploited commercially. The science, if proven to perform as early indications suggest, will greatly reduce the need for insulin injections by patients suffering from juvenile and adult-onset diabetes. Since diabetes is growing at an alarming rate, particularly among adults, Jones is excited and prepared to quit her job. She is intimidated, however, by the fact the development of the drug through FDA animal and clinical trials may, she understands from individuals who have “been there,” cost upwards of $30 to $40 million. Indeed, simply to fund testing to get a new drug ready for the FDA will require several hundred thousands of dollars of additional work in the lab.

Jones goes to the Internet and downloads some of the existing literature on early-stage finance; she puts together a business plan seeking to raise the entire amount necessary to get her product on the market. At this point, the case study is interrupted by a supervening fact: Jones is almost certain to fail. With exceptions with which I am not personally familiar (other than a few extraordinary Internet-related examples), it is impossible to raise a multimillion-dollar amount of capital for a start-up in one lump sum. If one sets out to do so, time and money are wasted. The successful examples, accordingly, divide the fund-raising process into small bites. The first amount of capital raised (a “tranche” in VC jargon) is $500,000. There is no magic in that number but it has repeated itself often enough that it has become part of the canon. Five hundred thousand dollars takes the startup to the point where indications of success have become strong. There is, perhaps, even a so-called beta test, meaning a working prototype of the product or technology and, in the biotech arena, successful phase-one trials. The next tranche is, therefore, $3 million. (Again, there is no magic to the number, but it repeats itself so often it has become part of the culture.) The $3 million also may come from high net worth individuals, often those acquainted with the founder (and here the jargon is that the founder is going through his or her “Rolodex offering”), but also may include a venture fund, turning the financing into the “first venture round.” Getting ahead of the story, the $3 million does not arrive in one lump sum, ordinarily, but in increments. Recognizing that $3 million is only a fraction of the $30 to $40 million needed, the founder and her advisers, perhaps including a boutique placement agent at this stage, are coincidentally searching for strategic investment, for example, a minority tranche from an ethical drug company in exchange for stock, marketing, and distribution rights to the technology if it clicks. Again, the case study indicates the rules of thumb in the trade. The strategic investor invests at a 25 percent more favorable valuation than the financial partners, a number validated by reliable survey materials. But the bad news is that it takes about twice as long for a strategic investor to make up its mind as a financial partner.

The company is then up and operating, slogging its way through the FDA gauntlet of phase-one, phase-two, and phase-three trials, and burning money at a rate of several hundred thousand dollars a month. As the science arrives at the early stages of FDA scrutiny and trials, the VCs and the founder start talking about a mega-financing by tapping the public equity markets—an initial public offering (IPO).

Again, referencing current fashion, serious investment bankers (and not those firms of questionable pedigrees sometimes known as the “Boca Raton” bankers) express an interest conditional on the company having at least one, and preferably more, applications of its science in phase-three trials. The minimum size of the offering is $30 million for somewhere around one-third of the company, meaning a total post-IPO company valuation of $100 million. A financing takes about six months from start to finish and is fraught with risk, including the possibility of a “fail” on the eve of the effective date if the market turns against biotech stocks, as it does episodically for reasons which can be totally unrelated to Jones and her firm. Assuming a successful public offering, $30 million still may not be enough to get to cash-flow break-even, since the company is taking on other scientific projects, which burn money at a rapid rate, in order to justify the expectations of the market that it is a real company and not just a line of one or two products. The IPO is then followed by another primary offering some six months later, assuming the stock holds up well and the market continues to stay in love with the company’s prospects. This time the valuation is advanced to, say, $150 million and the company again puts $30 million in its pocket. The period between the first and the second financing is stressful for Jones because she is not only managing her firm but also, once the company has become public, continually spending time cozying up to stockholders, analysts, and other members of the investment community so that the popularity of her company, as measured by the trading price of her stock, remains strong. Jones has been told that the “road show” (that presentation she made to the investment community and investment bankers immediately prior to the IPO) “never ends.” The irony is that at a company valuation anywhere under $300 to $500 million, the company risks a visit to the so-called growing orphanage, meaning that cohort comprising 70 percent of the 12,000 companies currently public which are not followed by the investment analysts, and, therefore, are not liquid in any true economic sense, with a stock price reflecting an efficient market. Jones is advised, accordingly, to pursue a so-called rollup or platform strategy, meaning using her public company as the platform to absorb other public and private companies which have not been able to make it on their own but which house interesting science and have brought their intellectual property to the brink of commercial exploitation. By rolling up those companies into her platform, she is able to increase her market capitalization to one-half billion dollars and finally take a one-week vacation in the Bahamas.

After all the dilution she still owns about 7 percent of her company personally, which translates, on paper at least, into $35 million. She cannot get out at that price because she is contractually obligated to “lock up” (i.e., not sell) for various periods of time so as not to create undue selling pressure. And, she has been living for four or five years on a salary which is somewhat less than half of what she could have earned had she not entered into this enterprise in the first place. However, she beat the odds. She will ultimately have some liquidity, together with the priceless satisfaction of having grown a major public firm and served mankind in the process. She will no longer, incidentally, be chief executive officer. That post was filled shortly after the first venture round, with Jones continuing as chair and chief scientific officer. The first individual hired having not worked out, there have been two CEOs since: the last one a grizzled veteran of the pharmaceutical industry and a long-time favorite of Wall Street. The office of chief financial officer has also changed hands a few times, the law and accounting firms are new, and a major-bracket investment bank long ago replaced the placement agent. Alleged dissident shareholders have sued Jones twice, in fact stimulated by underemployed plaintiffs’ counsel for allegedly keeping good news (or bad news, depending on how the stock price performed) under wraps for too long. Was it worth it? The answer, of course, depends on the individual. This game is not for everybody.

Activists Redux

Recently, I wrote a piece analyzing the pros and cons for this country’s economy on Activists Investors, citing Marty Lipton versus Lucian Bebchuk of the Harvard Law School on the other side (see My conclusions, however, were based on a issue which, as far as I was aware, none of the analysts, journalists or academics had identified as the most important negative consequence resulting from the rising tide of Activists’ challenges to public company management and boards.

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Doing Deals With A Non-U.S. Investor Or Buyer

Guest Post by Nancy Yamaguchi, Partner, Withers LLP

Every company, big and small, must operate globally these days because there are business opportunities and investors all over the world. In the previous years, venture capital investment seemed most active in the U.S., and the venture capitalists on Sand Hill Road in Silicon Valley were dominant players in providing early stage funding to successful companies such as Google and Cisco. As for an exit strategy, the typical path for almost every startup in the U.S. was an initial public offering (IPO) on Nasdaq or a sale to a large public company in the U.S. Today, we are seeing a lot of activity in Asia in terms of venture capital investment and acquisition of startups, and there are more and more venture capital investors in Asia, especially in Hong Kong, Singapore and Japan, as well as private investors in Europe, especially in the U.K., Norway, Finland and Denmark. Granted, these locations where we are encountering investors and buyers may be as a result of my firm’s presence or client base there, but nevertheless, the fact is that there is a new trend. This trend is that many of the U.S. technology startups and entrepreneurs are closing more deals with investors, buyers, customers and partners outside of the U.S. Any startup company in the U.S. currently seeking financing or looking to be acquired should not preclude themselves from financing sources outside of the U.S. or being acquired by a non-U.S. buyer, and as long as they are prepared to think “outside of the box” and adapt to other business cultures and legal systems, they would be well-advised to think globally and act globally.

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