Frank Quattrone, Star Banker of Technology Ventures, Talks Wistfully of the Good Old Days—Before Netscape’s IPO

2/2/10Follow @bvbigelow

[Editor's note 2/3/10, 3:15 pm: Robert Kibble, who conducted the chat with Frank Quattrone at this event, took issue with aspects of this story. See comments below.]

At a time when the IPO market appears to be loosening a bit, controversial former investment banker Frank Quattrone appeared before a regular meeting of the San Diego Venture Group—and he had a lot to say about today’s outlook for IPOs.

Despite a promising increase in the pipeline of IPO deals, Quattrone told the San Diego crowd, “The IPO market is structurally damaged.” In contrast to the deals Quattrone saw in the late 1980s and early ’90s, when “some of the biggest names in the tech business were taken public by a small firm for less than $10 million,” Quattrone says a typical IPO these days seems to require big numbers and big-name underwriters, “including three co-managers and seven book-runners.”

Addressing the startup CEOs and VC partners in the audience of roughly 450 people, Quattrone said, “You guys think the only ones worthy of running your IPOs are Morgan Stanley and Goldman Sachs.”

Qatalyst Partners logoQuattrone, who was Silicon Valley’s star banker for more than 15 years, said he yearns to return to a simpler era that existed before the tech boom of the late 1990s escalated into a casino mentality of ever-larger deals. He talked nostalgically about joining Morgan Stanley in 1977, when it was a private partnership with a thousand employees that provided only financial advisory services. Quattrone said that’s what he hoped to recreate when he founded Qatalyst Partners, a small merchant banking firm in San Francisco on March 19, 2008—”two days after Bear Stearns sold for $2 a share.”

In essence, Quattrone told the crowd the financial industry grew too large and too over-extended—with too many VCs and too many underwriters on too many deals—at a time when too many big investment firms had leveraged themselves at 30 or 40-to-1 on borrowed capital. He now predicts that the venture capital industry is going to shrink, “and only the best funds are going to survive.”

Quattrone’s star began shining brightly in 1995, when … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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  • Robert Kibble

    I was the moderator of the San Diego Venture Group event in which I had the privilege of interviewing Frank Quattrone. Regretfully there were a number of instances in the article penned above that were inaccurate and were quite misleading in the impression given, and I want to correct them:

    • In reference to Morgan Stanley, Frank said the firm’s mantra, when he was there, was to provide great advice to corporations based on what was in their best interest. Then, not singling out Morgan Stanley, which he said remained a great firm, Wall Street in general had strayed far from that mantra as the firms focused more on lending, trading and principal activities.

    • Frank said that in the ‘80s and ‘90s many high quality IPOs were done with a single book runner and a single co-manager, while contrasting that with a few more recent IPOs where there were multiple bookrunners and lead or co-managers.

    • In reference to government regulation, Frank was critical in general of overzealous prosecutors and cited the dismissal of the Ruelhe/Broadcom case and reversal of other cases where there was prosecutorial misconduct or a biased judge, as per his own case (where the appellate panel removed the judge from further proceedings).

    • Frank never was asked about his role during the Internet “bubble” and the comment here is unfair. What he did do was to cite the poor performance of the 1999-2000 IPOs as one reason that led to the structural damage to the IPO market.

    • Frank did not say that he would “short” the venture capital industry if it was a stock. What he did point out is true, namely, that as a generality funds from 1998 and prior had shown very healthy returns, but for every vintage since then the returns had been terrible. Referring to the chart illustrating these historical returns, he commented if the chart were a stock he would short it.

    • Regarding today’s requirements to go IPO, Frank said that in the past companies could go public with $30 – $50 million in revenues but now it requires $100 million to $200 million in revenues.

    • He said that many of the most successful IPOs in the past had done so while raising only $25 – $50 million in capital, but large underwriters are no longer interested in doing deals of that side. However, he said that he thought with concentrated economics for the underwriters, IPOs of say $60 million would absolutely be possible today – he cited Open Table as an example.

    Robert Kibble
    Managing Partner
    Mission Ventures

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