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Silicon Valley Stock Exchange Debuts in Search for First IPO

Lananh Nguyen

(Bloomberg) -- The Long-Term Stock Exchange started trading not with a bell, but a videoconference.

Founder and Chief Executive Officer Eric Ries hosted the company’s 39 employees and their families Wednesday as they debuted the stock-trading venue that started as a two-page passage in his 2011 book on entrepreneurship, “The Lean Startup.” After months of delays caused by the pandemic, major U.S. stocks began changing hands on the platform.

The debut kicks off the company’s effort to enter the corporate-listings business, where the New York Stock Exchange and Nasdaq Inc. have a stronghold. Another challenger, IEX Group Inc., tried and failed to break through.

“This project has taken every bit of skill and knowledge that I have accumulated over the course of my entire life -- every last trick and tip, every principle,” Ries said in an interview before the launch. “We would be dead multiple times over if not for the lessons I’ve learned the hard way.”

The launch wasn’t entirely smooth. A small group of clients had order delays when the venue went live because of excessive messaging, according to LTSE spokesman Steve Goldstein. LTSE put those clients on hold to investigate the issue, which didn’t affect the bulk of other clients, and resolved the problem in about an hour. The daily volume was 283,765 shares with a notional value of $117.7 million.

The exchange has raised about $90 million, with backing from venture capital firms including Founders Fund, Collaborative Fund and Andreessen Horowitz.

The San Francisco-based company said it aims to clinch initial public offerings from companies that are committed to environmental, social and governance principles. That may be a challenge in the coming months, or years, given uncertainty over the economic outlook.

“We put long-term right in the name of the company, so we’re in no rush,” Ries said. “If the IPO window, as they call it, slams shut and companies can’t go public for a while, that’s OK. We’ll be ready for them.”

LTSE executives have spent a lot of time trying to win over the bankers who are key players in the IPO process. The exchange faces skepticism from Wall Street veterans who question how it will enforce governance standards and those who say it will struggle to compete with established exchanges in the listings business.

But after LTSE won approval from the U.S. Securities and Exchange Commission in May 2019, market participants began to do more work to ensure the venue would function in the broader ecosystem of the world’s biggest stock market. Major banks are now members of the exchange, and the CEO has even gotten congratulatory messages from naysayers, he said.

The venue isn’t chasing increased trading activity as a way to make money, even though it’s connected to the national market system for stocks, Ries said. Instead, he’s pitching issuers on a venue that places emphasis on their fundamental value to the economy rather than how often their shares change hands.

“Anyone who’s not concerned about the vast disconnect between the performance of the stock market assets and the human misery and suffering that is evident in the underlying real economy -- if that divide doesn’t keep you up at night and you’re in this business, you have a real problem,” Ries said.

(Updates volume in fifth paragraph. A previous version of this story corrected the amount raised and the company’s location.)

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