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10:30 AM Session 107 | Testing the Waters – Initial Public Offerings In Friday, Nov. 8, 2019 9:15 AM – 10:30 AM Session 107 | Testing the Waters – Initial Public Offerings in the Age and Shadow of the Unicorn Since January, over a dozen Unicorn companies have listed on the NASDAQ and NYSE, and have generated over $20 billion in IPO proceeds, with several more in 2019 expected. While this program may not focus on the magical, horned equine that occupy the pages of fairy tales and folklore, the Unicorns of 2019—that is, startup companies valued at or above $1 billion—have a mythos all their own and have been some of the most talked about IPOs in recent history. Spanning the country, some of the best‐known ride sharing, social media, apparel, biotech, cyber security and e‐commerce companies—companies whose products or services we use on a daily basis—are among the Unicorns that have gone public this year. We will discuss the current IPO market, along with the legal, regulatory and business considerations for companies that wish to go public from the perspective of the various legal counsels involved in the IPO offering process. We will cover how these Unicorn IPOs have impacted both IPO and securities trends, as well as recent general developments in the field of public company securities law, from the new testing the waters marketing regulations to smaller reporting company and emerging growth company status. Moderator: Alice Hsu, Akin Gump Strauss Hauer & Feld LLP Speakers: W.S. Wilson Leung, Uber Technologies, Inc. Osamu Watanabe, Moelis & Company Dwight Yoo, Skadden, Arps, Slate, Meagher & Flom LLP Testing the Waters – Initial Public Offerings in the Age and Shadow of the Unicorn Friday, November 8, 2019 Alice Hsu, Partner, Akin Gump Strauss Hauer & Feld LLP Wilson Leung, Director of Investigations and Litigation for Uber Technologies, Inc. Osamu Watanabe, General Counsel, Moelis & Company Dwight Yoo, Partner, Skadden, Arps, Slate, Meagher & Flom LLP What is a Unicorn? A term used in the venture capital and investment banking industry, a unicorn refers to a startup company whose valuation is $1 billion or higher. 2 Initial Public Offerings Why Go Public? IPO: The first sale of stock by a private company to the public Potential Benefits Potential Considerations Fund growth Dilution of ownership Liquidity for financial sponsors, founders (estate Corporate governance and SOX compliance planning) management and employees Distraction for management Set a public market valuation “Fishbowl” existence De-lever the balance sheet Disclosure of information to competitors / vendors Prestige & publicity Fees & expenses Upgrade management & attract/retain good employees Accurate financial reporting Establish an acquisition currency Vulnerability & change of control Alternative to sale of company Alternative to sale of company 3 Unicorn IPOs of 2019 (through October 2019) Company Shares of Price Aggregate IPO Dual Class Primary, IPO Pricing (Exchange: Ticker) Offered in per Value Stock Secondary or Date IPO Share Mixed Issuance Adaptive 15,000,000 $20.00 $300,000,000 No Primary June 26, 2019 Biotechnologies Corporation (Nasdaq: ADPT) Alector, Inc. (Nasdaq: 9,250,000 $19.00 $175,750,000 No Primary February 6, ALEC) 2019 Beyond Meat, Inc. 9,625,000 $25.00 $240,625,000 No Primary May 1, 2019 (Nasdaq: BYND) BridgeBio Pharma, 20,500,000 $17.00 $348,500,000 No Primary June 26, 2019 Inc. (Nasdaq: BBIO) Chewy, Inc. (NYSE: 46,500,000 $22.00 $1,023,000,000 Yes, Class B Mixed June 13, 2019 CHWY) entitled to 10 votes Cloudflare, Inc. 35,000,000 $15.00 $525,000,000 Yes, Class B Primary September 12, (NYSE: NET) entitled to 10 2019 votes CrowdStrike Holdings, 18,000,000 $34.00 $612,000,000 Yes, Class B Primary June 11, 2019 Inc. (Nasdaq: CRWD) entitled to 10 votes 4 Unicorn IPOs of 2019 (through October 2019) Shares of Price per Aggregate IPO Dual Class Stock Primary, IPO Pricing Company Offered in Share Value Secondary Date (Exchange: Ticker) IPO or Mixed Issuance Datadog, Inc. 24,000,000 $27.00 $648,000,000 Yes, Class B Primary September 18, (Nasdaq: DDOG) entitled to 10 votes 2019 Dynatrace, Inc. 35,609,612 $16.00 $569,753,792 No Primary July 31, 2019 (NYSE: DT) Fiverr International 5,263,158 $21.00 $110,526,318 No Primary June 12, 2019 Ltd. (NYSE: FVRR) Gossamer Bio, 17,250,000 $16.00 $276,000,000 No Primary February 7, Inc. (Nasdaq: 2019 GOSS) Levi Strauss & Co. 36,666,667 $17.00 $623,333,339 Yes, Class B Mixed March 20, 2019 (NYSE: LEVI) entitled to 10 votes Lyft, Inc. (Nasdaq: 32,500,000 $72.00 $2,340,000,000 Yes, Class B Primary March 28, 2019 LYFT) entitled to 20 votes Medallia, Inc. 15,500,000 $21.00 $325,500,000 No Mixed July 18, 2019 (NYSE: MDLA) PagerDuty, Inc. 9,070,000 $24.00 $217,680,000 No Mixed April 10, 2019 (NYSE: PD) Peloton Interactive, 40,000,000 $29.00 $1,160,000,000 Yes, Class B Primary September 25, Inc. (NYSE: PTON) entitled to 20 votes 2019 5 Unicorn IPOs of 2019 (through October 2019) Company Shares of Price per Aggregate IPO Dual Class Stock Primary, IPO Pricing (Exchange: Ticker) Offered in Share Value Secondary Date IPO or Mixed Issuance Pinterest, Inc. 75,000,000 $19.00 $1,425,000,000 Yes, Class B entitled Primary April 17, 2019 (NYSE: PINS) to 20 votes Revolve Group, Inc. 11,764,706 $18.00 $211,764,708 Yes, Class B entitled Mixed June 6, 2019 (NYSE: RVLV) to 10 votes Slack Technologies, 118,429,640 $26.00 $3,079,170,640 Yes, Class B entitled Secondary June 20, 2019 Inc. (NYSE: WORK) to 10 votes SmileDirectClub, 58,537,000 $23.00 $1,346,351,000 Yes, Class B entitled Primary September 11, Inc. (Nasdaq: SDC) to 10 votes 2019 The RealReal, Inc. 15,000,000 $20.00 $300,000,000 No Primary June 27, 2019 (Nasdaq: REAL) Tradeweb Markets 40,000,000 $27.00 $1,080,000,000 Yes, Class B and D Primary April 3, 2019 Inc. (Nasdaq: TW) entitled to 10 votes Uber Technologies, 180,000,000 $45.00 $8,100,000,000 No Mixed May 9, 2019 Inc. (NYSE: UBER) Zoom Video 20,869,565 $36.00 $751,304,340 Yes, Class B entitled Mixed April 17, 2019 Communications, to 10 votes Inc. (Nasdaq: ZM) 6 (Once) Anticipated 2019 Unicorn IPOs • Airbnb, Inc. • Casper Sleep Inc. • Chinos Holdings, Inc. (to be renamed Madewell Group, Inc.) • Instacart • Palantir Technologies • Postmates Inc. • Reynold Consumer Products, Inc. • Robinhood Markets Inc. • Rubrik • Stripe • The We Company (withdrawn) 7 2019 was anticipated to be the Year of Unicorn IPOs 8 Uber Technologies, Inc. Celebrates its IPO and Listing on NYSE by Ringing Opening Bell 9 Lyft, Inc. Celebrates its IPO and Listing on Nasdaq by Ringing Opening Bell 10 Overall IPO performance has been positive year-to-date 11 But several highly anticipated IPOs underperformed expectations 12 And U.S. IPOs in particular have struggled since mid- summer peak Peak (July 26) Since Source: Google Finance 7/26 Peak 2019 YTD IPO ETF -10.8% 28.3% S&P 500 1.4% 22.2% 13 Which has contributed to recent, more challenging pricings and pessimism 14 Which is in stark contrast to IPOs earlier in the year 15 Parties Involved in an IPO • Company/Issuer – Board of Directors – Management: CEO, CFO, in-house legal, investor relations • Existing Stockholders • Underwriter(s)/Investment Bank – In-house legal team • Outside Legal Counsel – Issuer’s counsel – Selling stockholders (if offer includes secondary component) – Underwriter’s counsel • Accountant/Auditor • Transfer Agent, Registrar and Custodian • Regulators – SEC – FINRA – Stock Exchange – NYSE/Nasdaq 16 Offering Terms • Class of Stock – In their IPOs, companies can offer one or more classes of stock. These classes may differ in the rights they afford shareholders. • Number of Shares Offered – The 424 Prospectus will detail the exact number of shares to be offered in the IPO. • Price Range and Midpoint • Primary and Secondary Offerings – Primary: Shares are being issued directly from the company to the public – Secondary: Shares that are held by existing shareholders of the company are offered to the public. – Mixed: IPOs can involve a mix of stock, some issued from the company and some sold by existing shareholders. • Use of Proceeds – Companies must disclose how they intend to use the proceeds generated by their IPO. General corporate purposes is a common, if vague, explanation. 17 The 424 Prospectus • The 424 Prospectus is a disclosure document prepared and filed with the SEC by the issuer that discloses specific information that pertains to the offering, including: – Number of shares to be sold – Price at which those shares are to be sold – Underwriting arrangement and any discounts or commissions – Risk factors inherent in an investment in the company’s securities. • Corresponds with a previously filed registration statement, such as a registration statement on Form S-1. • The 424 Prospectus is often used as a marketing document as well, sharing growth projections, financial statements, market share percentages and business segment details with potential investors. 18 The Underwriting Agreement • The underwriting agreement is the operative document in an IPO. • Parties to the underwriting agreement include the issuer, the underwriter or underwriters if there are more than one and any selling shareholders that might be participating in the securities offering. Underwriters will often form a syndicate that will be led by a representative, or lead underwriter. This arrangement helps divide the burden of marketing the new securities. • The underwriting agreement contains the terms of the of the transaction, including the underwriter's commitment to purchase the new securities, the agreed-upon price, the initial resale price, the settlement date and the allocation of liability.
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