[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.”
Quattrone, 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
