The banks each had bought a piece of the payments startup in an earlier private investment round. Because deal, they
received arrangements negotiated by other investors under which the company would compensate financiers with more shares if
the IPO came below a certain cost
That showed prescient when Square, with demand from investors looking weaker than expected, opted to set a lower price.
based in part on the banks assistance.
The strong subsequent gains in Squares stock could make the strategy of choosingselecting a lower rate a plan for
technology business that face going public at appraisals below their private marks. However some in Silicon Valley worry
that banks dual functions as owner and adviser might set the phase for stress around future offerings.
Banks are naturally conflicted because their clients are both the financier buyers of the shares and the business that
is selling the shares, kept in mind Spencer Rascoff, primarypresident of online real-estate business Zillow Group Inc. and a.
well-known angel investor. This conflict is even more exacerbated when the banks have also invested directly in the.
Goldman Sachs, JP Morgan and other banks have policies to handle possible problems that consist of needing an.
independent underwriter and not connecting bankers compensation on a deal to investment performance, individuals knowledgeable about.
the firms said. In many cases, such as with JP Morgan and Square, the stakes are owned by parts of the bank separate.
from the financial investment bank, such as an asset-management department or the banks technique group.
In Squares $279 million offering, the business picked Morgan Stanley as an independent lead underwriter that unlike.
Goldman and JP Morgan owned no stake in the company.
Banks have done more venture-stage investing in current years to obtain closer to startups long before they produce huge.
deal costs. This year, 8 of the greatest investment banks– JP Morgan, Goldman Sachs, Morgan Stanley, Bank of.
America Corp., Citigroup Inc., Barclays PLC, Credit Suisse Group AG and Deutsche Bank AG– purchased $3.75 billion of.
venture-capital rounds, a 14-year high. The figure has increased 21 % from in 2014 and about 500 % from 2013, according to.
Dow Jones VentureSource.
Private-market evaluations throughout innovation have flourished in recentrecently, a worry considering that several IPOs have stumbled out.
of the gate, leaving late-stage private investors with possible losses. About 30 % of big personal companies that sold.
a personal stake in the year ended March 31 provided investor securities versus a lower IPO rate, according a report by.
law firmlaw office Fenwick amp; West LLP.
According to the company, about half the time that involved exactly what is known as a cog, a feature JP Morgan and.
Goldman had in the Square offer. A ratchet provides financiers extra shares to make up for a lower IPO price, but it.
weakens the stakes of other investors, consisting of workers and business founders.
Other start-ups might deal with similar rates issues. Flipboard Inc., which offers a news-reading app, granted a ratchet to.
investors, including JP Morgan, in its last 2 financing rounds, according to an incorporation document evaluated by.
The Wall Street Journal.
Formerly valued at $2.21 a share, or roughly $800 million, the company would need to offer extra shares to JP.
Morgan and others if it cant stage an IPO at a per-share value 25 % greater, the file says.
While no IPO is imminentimpends for Flipboard, the plan might provide a problem if the business were to go public with.
JP Morgan as an adviser. A Flipboard spokeswoman declined to comment.
Other business that gave ratchets in personal financing rounds included software firm Box Inc., textbook-rental.
service Chegg Inc. and cybersecurity carrier LifeLock Inc. Goldman was both an investor and underwriter in LifeLock,.
which went public in 2012.
(END) Dow Jones Newswires.
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