IPO course of has gotten worse in final 5 years, says Invoice Gurley

The massive pops during the recent market debuts proved that the traditional IPO process has only gone downhill, Benchmark’s Bill Gurley said Tuesday.

“The IPO process has deteriorated rather than improved over the past five years,” said Gurley, who led the company’s investments in companies like GrubHub and Zillow, in an interview with CNBC’s “Closing Bell.” Gurley pointed to DoorDash and Airbnb, which were up 86% and 112% in their first few days earlier this month, and called the jumps “dropped out.”

“The bankers have convinced everyone that you only want to meet a handful of investors, and then they would use that phrase. You can ask them, they have told everyone that they want to be 30 to 50 times oversubscribed,” said Gurley. “If you just think about the basic economics of supply and demand, who in their right mind would choose to be oversubscribed 30 to 50 times? And they looked at you with serious faces and told you that was the goal.”

The public offerings sparked a debate over traditional IPOs, with critics looking at the money left on the table. Last week, Verishop CEO Imran Khan said the public debuts showed extreme incompetence of their investment bankers. CNBC’s Jim Cramer has also criticized investment banks for failing to properly account for the “new cohort” of younger investors when pricing their IPOs.

Companies that go public as part of the IPO process pay high fees to subscribers so that new shares can be created and sold to the public. Gurley, however, was strongly against going public, saying it had resulted in new listings becoming increasingly undervalued.

IPO critics scored 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 charging high fees.

“I don’t have to complain about it anymore because it’s over, we just have a brand new solution,” Gurley said of the NYSE’s announcement.

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