April 18, 2021

Coinbase Sticks it to Wall Street in $100B Direct Listing ๐Ÿ™ˆ

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Mesh Lakhani

Hey All,

Welcome to Talk Money Weekly - where I cut through the noise and curate the best money-related topics from the web.

Episode #3 of the Talk Money Weekly podcast is live. This episode is a continuation of last week's discussion on Bill Hwang's $8B loss and how taking on too much debt is risky.

I also discuss how Morgan Stanley saved their own ass, leaving the rest of Wall Street to fend for themselves.

On to the Newsletter!

๐Ÿ“ˆ Markets & Business

Coinbase Helped Bitcoin Go Mainstream

It was a big week for Bitcoin and crypto. Coinbase, the company that created the "killer app" to make it easy to buy Bitcoin, is now a public company. When Brian Armstrong and Fred Ehrsam started this company in 2012, Bitcoin was for the dark web and the "hacker" culture. They had a dream to start a company that could bring this to the world and makes it easy to purchase and store. The price of Bitcoin was then $6, and it's around $60,000 now. Without Coinbase, I'm not sure we would've gotten here.

Similarly, Netscape was the killer app that allowed the general public to surf the web. When you think of technology, you want to think in decades, not years. We're still in the early innings and more companies like Coinbase will allow for all of this to become more mainstream, more accessible, and more transparent. Ease of use will be key.

A $100B Company Started with $150K and Dream to Bring Economic Freedom for All ย 

It's crazy to think that a company that is worth almost $100B started off with a $150K check and a founder who believed in a future that was based on a whitepaper written by an unknown person. Coinbase was born out of the same accelerator program that produced Reddit, Airbnb, Dropbox, Stripe, and Doordash. And while things have worked out well, it wasn't always the case. Startups are super volatile and most fail.

I bought my first 5 Bitcoin on Coinbase back in 2014. I sold it one week later for a $50 loss. I later bought more again in 2017, along with a bunch of other folks. During that time Coinbase saw a 10X surge in users as everyone was buying Bitcoin and other cryptocurrencies during the hype cycle. It was hard to get the app to work. You couldn't buy/sell when you needed to. Customer service couldn't respond to requests fast enough (or at all).

Then for the next 3-4 years, things remained quiet, and Coinbase was able to prepare for the next boom, which is where we are now. It could've failed several times, but it survived through the growing pains. This is why startup investing is so hard, but it's why it's so rewarding when things for right. That first $150K check into Coinbase is worth around almost $1B now.

Coinbase Chose to do a Direct Listing vs IPO

The similarity between a "Direct Listing" and an "IPO" is that a company goes public. The difference is the mechanisms for how they do it. Given that Coinbase allows the general public to buy/sell/store Bitcoin and other cryptocurrencies, it felt it was more aligned with the direct listing approach. This is where a company "DIRECTLY" lists the company on the stock exchange, and is priced more by the natural supply/demand of the company vs the investment banks making an estimate. In this case, no additional shares were created because Coinbase was not raising additional money, which we often see when a company goes public. Instead, if offered early/private investors and employees an opportunity to sell their shares to those who wanted to buy.

So if you were waiting to buy shares of Coinbase ($COIN) on the day they went public, you were actually buying those shares from either an employee, early investor, or one of the founders. This allows for people early in the company to get some cash off the table (which is a good thing), and it also keeps leaving any money off the table, like in a traditional IPO. IE, when a bank charges a shit ton of fees to shop the company around to the institutional elites and prices it under what the demand is.

More and more companies are choosing to do direct listing vs the traditional IPO, mostly led by tech companies. In addition to Coinbase- Spotify, Roblox, Slack opted to do a direct listing. Squarespace also just announced they will be doing the same. Overall, this is a good thing for the markets and another FU to the bankers. I will be covering the Coinbase IPO on Wednesday's episode of the Talk Money Weekly Podcast.

The Most Popular Search Terms in Investing

Is this surprising? Not at all. Charles Schwab's investing platform's search basically consists of all tech. The first five names are what's all over the news. This is actually a good thing in my opinion. There are more people now interested in investing than ever before and they want to get involved. If the last decade was about low-cost index investing, this next decade is going to be people wanting to invest directly into companies and crypto.

What about things like Dogecoin? It's not for me, given that it's so speculative. I don't want to be a part of it. Same reason why I won't trade Gamestop, AMC, etc. (I did it ONCE). I want to buy and own a company for a long period of time because I believe it's the future, and in return, I want to be paid well for it. With more interest, we need more education. But just like people want to invest in things that are speculative and headline news, our education needs to be like box office movies. Entertaining and loud. This is my ultimate goal.

๐ŸŽ™ Podcasts

All In Podcast Covers Coinbase

GREAT listen. The discussion around the Coinbase IPO is a good one because both Chamath and David own shares of Coinbase and benefitted from the IPO. It's interesting to hear their take on the pros/cons of a direct listing.

That's all the news from this past week! If I was to make this newsletter into a Youtube show, would you watch it?

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