(Bloomberg) -- Michael Grimes, Wall Street’s Silicon Valley whisperer, appeared headed for a comeuppance.
It was 2012 and the humiliating stock-market debut of Facebook Inc. was spawning investor losses and lawsuits. That left Grimes -- the offering’s architect and Morgan Stanley’s premier banker -- a wounded man in the eyes of competitors. Pieces of his franchise, some thought, would soon be theirs.
Within a year, it was clear Grimes’s team was holding its ground. And as a wave of U.S. tech start-ups headed for initial public offerings this year, he landed the biggest since Facebook: Uber Technologies Inc.
As the world now knows, Uber’s big moment this month didn’t go as planned, at least for small-timers who had waited a decade to buy into the ride-hailing giant. In fact, it’s been harrowing. The stock tumbled 18% in its first two days of trading. Though it found its footing last week, it was still 7% below the initial price of $45 as of Friday. The shares dropped an additional 3.7% to $40.35 at 9:46 a.m. in New York.
Yet by all accounts, Grimes is flying high. And this time, many in the business privately predict he will emerge unscathed. Other buzzed-about clients he’s cultivating, like Airbnb Inc., are unlikely to be put off by Uber’s rocky start, according to people close to the start-ups. Morgan Stanley has relationships with legions of wealthy investors and an army of more than 15,000 brokers who can pitch stocks to the masses. For now, Grimes remains the banker to beat in Silicon Valley, with one investor saying the only other competitor that’s comparable is one of Goldman Sachs Group Inc.’s top technology bankers, Ryan Limaye. Both men were trained as engineers.
Venky Ganesan, a partner at Menlo Ventures, which backed Uber, defended Grimes as “one of the top bankers of his generation.”
How Grimes, 52, has become technology’s Teflon banker underscores a sobering truth about the IPO game: People on the inside can get wildly rich, even when many ordinary investors don’t. After years of private funding rounds that helped Uber put off going public, Morgan Stanley’s bankers led almost 30 securities firms in finding buyers to raise an additional $8.1 billion, regardless of the subsequent stock-market swings.
Increasingly, that’s life for retail investors at the bottom of the food chain. They wait to participate in Silicon Valley’s successes. When the public listing finally arrives they tend to buy new stock at the dearest of prices.
Indeed, they flocked to Uber. According to TD Ameritrade, individuals accounted for an unusually large amount of trading the day Uber hit the market. It was among the top five retail debuts since Facebook.
Those investors can still end up doing just fine over the long haul. Witness Grimes’s initial stumble with Facebook: The stock suffered technical glitches as trading began, then tipped into a months-long slide, losing half its value. But ultimately, it roared back and is now worth almost five times its initial price.
A spokeswoman for New York-based Morgan Stanley declined to comment.
‘Talking Their Language’
Grimes clinched Uber’s IPO with a pitch to its board that showed he was fluent in the same lingo spoken by employees, according to people familiar with the matter who asked not to be named describing the talks. Goldman Sachs, which started wooing Uber’s leaders years ago and even bought a stake, was listed second on the deal, followed by Bank of America Corp.
“You could put him in the room with Sundar or Satya or a young unknown founder, and he’s immediately talking their language,” said Jim Goetz, a partner at venture capital firm Sequoia Capital, referring to the heads of Google and Microsoft Corp. “Most of the time, bankers lead with financials. For Michael that’s an afterthought, and that’s a blessing in Silicon Valley.”
The mandate adds to the pile of money Morgan Stanley is collecting from ties to Uber. The bank is set to reap at least $41 million as the IPO’s lead underwriter. Regulatory filings show the firm previously pocketed fees for privately raising money, such as by selling stock to its wealthy clients in 2016.
It all underscores how important Morgan Stanley’s main business of tending money for investors is for the bank’s dealmakers.
“Morgan Stanley’s large wealth management business gives them an enormous competitive advantage over rivals like Goldman in pitching for IPOs,’’ says Tim Loughran, a professor at the University of Notre Dame who has studied stock offerings.
Still, the practice is a “double-edged sword,” he said. “A big problem could occur for Morgan Stanley if the IPO share price tanks after pushing the shares on their unsuspecting wealth-management clients. I am confident that investors who purchased shares in the hot Uber IPO at $45 are disappointed.”
There are also Grimes’s unusual habits and courtship strategies, which have made him something of a character in the industry. A computer science and electrical engineering major, he’s known to go to great lengths to understand the gadgets and apps produced by companies he woos.
During a successful pitch to handle Ancestry.com’s IPO in 2009, he showed executives a family tree he had created with his mother. Before leading Zynga Inc.’s IPO in 2011, he mastered its “CityVille” game on his phone. For Uber, he moonlighted as a driver. And when traveling, he relies on Airbnb to book accommodations and rent out his house. Many expect the home-sharing start-up to go public next year.
“He is truly a tech geek,” Sequoia’s Goetz said.
As Uber initially tanked, several investors and competing senior bankers on Wall Street privately pointed fingers at Morgan Stanley and, by extension Grimes. Others sympathized, noting the broader market turmoil set off by U.S.-China trade negotiations, and the recent dismal performance of Uber’s smaller competitor, Lyft Inc.
Either way, tech executives tend to focus more on the outcome for the company going public. As the thinking goes: Yes, bankers from Morgan Stanley and Goldman Sachs privately floated a potential $120 billion valuation for Uber last year that leaked to the public. But that’s just how the marketing machine works. On Friday, Uber was worth a respectable $71 billion.
Grimes has been in the hot seat before. Shareholder lawsuits flew after Facebook’s troubled IPO. That same year, Google found itself facing legal claims over its plan for a stock split. Shareholders claimed the move, designed with input from Morgan Stanley, would have unfairly allowed the search engine’s founders to extend their corporate control.
Since then, however, Grimes has increasingly served as the public face of Morgan Stanley in Silicon Valley. While Goldman Sachs and JPMorgan Chase & Co. often send their CEOs or other senior-most executives to court clients, Grimes has the clout to rep his bank himself from his base in Menlo Park. He often makes the rounds at the same charity events that draw the big names in technology.
Wall Street, for its part, is already moving on from the Uber IPO. Goldman Sachs and Morgan Stanley are among banks expected to help Slack Technologies Inc. list directly within weeks, making it the first high-profile U.S. company to use that highly unusual method since Spotify Technology last year. Other unicorns inching toward public markets include WeWork Cos. and Palantir Technologies Inc.
Grimes doesn’t always win, of course. Morgan Stanley is this year’s top lead underwriter of technology IPOs, but Goldman’s tech, media and telecom team, led by Nick Giovanni and Pete Lyon, currently ranks as that industry’s premier M&A adviser, according to data compiled by Bloomberg.
And there’s a risk that Morgan Stanley’s investing clients will start to stay on the sidelines if they suspect the firm’s bankers are taking them for granted. One large Uber investor had blamed the banks for pricing the IPO too high in the first place.
During the roadshow leading up to Uber’s IPO, underwriters gathered more than 100 institutional investors for an exclusive lunch at Manhattan’s Mandarin Oriental Hotel, telling attendees the location only shortly beforehand to ensure the meeting stayed exclusive.
One investor accustomed to such pitches said it was unusually crowded, with hedge fund managers bumping shoulders as they sat on folding chairs trying to eat pasta. Grimes and executives spoke, but the investor said the answers to questions were too anemic. Uber’s leaders may have been pleased by the performance, but he decided not to buy any shares.
(Updates Uber shares in fourth paragraph.)
--With assistance from Carolina Wilson, Eric Newcomer, Sarah McBride, Sridhar Natarajan, Olivia Carville, Lizette Chapman and Kurt Wagner.
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