Is The IPO Market Poised to Rebound?


A Conversation with Nasdaq Vice Chair Bruce Aust

Bruce Aust at the Nasdaq Entrepreneurial Center

Bruce Aust is Vice Chair of Nasdaq, one of the largest financial services firms in the world, best known for its tech-laden, US-based marketplace. But what many don’t realize is that Nasdaq provides the platform for 70 markets around the world, and has an extensive corporate services business as well. The firm recently stood up a non profit, the Nasdaq Entrepreneurial Center, which celebrated its first anniversary just one week ago.

Aust, who ran much of Nasdaq’s operations over the past 15 plus years, recently moved to California to oversee the Center and to be closer to his company’s West coast clients. The Center, which is our partner in producing the Shift Dialogs, has provided free education and mentoring programs to more than 3000 entrepreneurs in its first year. Below is a transcript of my conversation with Aust, as well as the video, both edited for length and clarity.

John Battelle: Let’s start with the Nasdaq Entrepreneurial Center, where we’re sitting today. It’s extraordinary facility. Why did Nasdaq decide to start the Center?

Bruce Aust: Nasdaq has always supported great entrepreneurial programs. We also feel Nasdaq’s success is related in large part to a lot of the great entrepreneurs that have listed companies with us over the years.

This is something that we can build over time. With the partners that we have and great sponsors, we really want to educate the next generation of entrepreneurs.

There are so many different entrepreneurial education programs out there. What makes the Nasdaq Entrepreneurial Center different?

There’s a couple of things. One, there is the Nasdaq brand and the sponsors that we’ve been able to attract. And all the classes are free to the entrepreneurs, so I think that’s a big advantage. I also think the fact that when you look at the ecosystem that Nasdaq has and the great entrepreneurs that we have, we bring that ecosystem to bear.

When I announced that we’re launching the center here in San Francisco, I got a flood of emails from CEOs saying, “Hey, can I participate? How can I give back? How can I help educate the next generation of entrepreneurs?” I think that ecosystem does play well.

If I’m an entrepreneur or a aspiring entrepreneur, how do I get involved in the program?

There’s a process of referring in. You can go to the website and learn about the process. It is really very easy. You just need two people to refer you into the Entrepreneurial Center. Once you do get the referral, we do ask that you also pay it forward. That you also are looking to take what you’ve learned at the Entrepreneurial Center and then share it with others and hopefully bring in other entrepreneurs that want to learn as well.

One of the things I found interesting was your focus not just on a milestone for an entrepreneur getting funded, getting acquired, or going public, but on a life long journey. The Center says, once you’re in, you’re in for life.

That is the goal, we do want our entrepreneurs to grow with us. With the one-year anniversary we launched a milestone program. That does get us to more of a graduation phase. In the early days we’re starting on basics — startup law, startup finance, media training here at the broadcast studio. But now we want to get into the next phase. You are going out to raise your first round of capital, we want to celebrate those milestones with our entrepreneurs as they grow and I think that’s exciting.

You had a goal in your first year — a certain number of entrepreneurs who participated in your education programs. Did you make that goal?

I thought it was an aggressive goal when we announced it almost a year ago, and we did exceed the goal — actually ahead of time. In July, we hit 2,000 entrepreneurs through the Center. I think that was a great effort by the team — it’s all about the programming. They won’t come unless there is content.

Tell me about that content. You mentioned briefly startup law, startup finance …

Those are some of the classes that have been very effective. Those are just basic blocking and tackling that you need as an entrepreneur. I’m (also) very excited about is a series of fireside chats that I’m hosting. I’ve had one just recently with John Chambers of Cisco. John is a legend in Silicon Valley and to have him here, to share his experience and how he got started as a leader and an entrepreneur was awesome. We had Credit Karma here last month, and we do these every couple of months. That allows the entrepreneurs to come in and hear firsthand how these other entrepreneurs share their stories.

You’re not only the president of the Nasdaq Entrepreneurial Center, but you’re also the Vice Chair of Nasdaq. What is Nasdaq’s mission?

Bruce Aust

People will be surprised about what our mission is today. It’s known as the market for tech companies, but we really have diversified quite a bit. (We’re) really a leading provider of technology solutions that enable businesses and investors to navigate the capital markets.

Whether that’s providing exchange technology — we run over 70 markets around the world in 50 different countries — or providing our services to companies that will help them tell their story better. We have a lot of technology solutions and we have become more of think tank company.

When I started my first company over 20 years ago, I didn’t know anything about accounting, I didn’t know anything about how to raise money. I had to pretty much make it up on the fly. Now it seems like there’s almost too much information. Do you have a curriculum?

We do. We have a great curriculum program in partnership with our sponsors. There’s also the universities, where we great partnerships as well. A great teaching staff that comes through, and they help us create the curriculum. I talk to so many CEOs that say they never had anything like this when they was starting out. They’re excited about what we’re developing here.

You did mention that Nasdaq has a much broader for remit and mission than perhaps people think. But people do think technology when they think Nasdaq. I wouldn’t be doing my job if I didn’t ask you what’s the state of the tech economy? It was a slow first half of 2016.

I’ve been working in and around NASDAQ and the tech environment for over 17 years now, and these things do ebb and flow. We saw last year was a big year for raises on the private market side, and we saw really high valuations. We had volatility in January, which nobody expected. We had record IPOs in the US last year, but January was the most volatile January we’ve had in years, since 2009. We had zero IPOs in the US. It was the first time since 2009.

Market volatility and market uncertainty will always affect the IPO market, and I think that’s just what we’re seeing. We also look at the fact that some of the IPOs in 2015 didn’t perform as well as the investors thought they might have. Investors are going to be a little more selective in their choices in 2016 and going forward.

Do you feel good about the economy generally? Do you feel perhaps investors pulled back a little too much, and that there is opportunity to take new companies out?

I definitely think there’s an opportunity. There will be more money, eventually, back in the market. We saw a little bit of that in May and June, when you saw people going back into small and mid caps, and you saw the opportunity to really get back into more risky investments, but then you had Brexit.

There’s uncertainty in the market, and when the VIX goes up, that’s when you have a low IPO market. It’s an election year, and that uncertainty around the election will also dampen the appetite to really access the public markets this year. We have a good pipeline of companies that will go out before the end of the year, but we really think 2017 will be where we see the IPO market return.

What do you think the biggest challenge is for entrepreneurial companies now?

The competitive marketplace for talent. As these companies are staying private longer, you’ve got to find some way to maintain that talent, and provide for those companies accordingly.

We launched the Nasdaq private market a couple years ago, and we are seeing more companies, as they’re staying private longer, access that market so that employees can have some liquidity to buy a house, pay off college education, buy a car. It’s expensive to live in the Bay Area, and companies want to retain their talent.

It seems we have a mismatch between the demand for a certain type of talent, and the supply. So you get these crazy perks, and tens of millions of dollars of stay bonuses for people moving from one big tech company to another. Are we heading in the right direction, in terms of the pipeline for that talent, do you think?

We talk about this a lot. We need to make sure that more people are being educated with STEM, and more money is being put into STEM, especially when you look at diversity.

You mentioned companies staying private longer, and that’s why you got into the private market business. Is this a trend that concerns you? Companies stay private longer, and then they get acquired. People are seeing exits, even billion dollar exits, but not necessarily public market exits. A lot of companies seem to be saying the public markets are too hard.

I don’t know if I would agree with that they’re saying it’s too hard. I would say that there are certain things, regulations have come into play. You look at why a Google might have gone public in its day, it was because they were coming into that threshold limit where they had to go public and started disclosing financials.

With the Jobs Act, you can now have 2,000 investors, and that’s not including employees, before you go public. They also allowed you to do confidential filings, they allowed you to go out and test the markets. A lot of the regulations around the Jobs Act did allow companies to be better prepared for when they did go public. I think that’s been a good thing for the markets.

It’s extended a runway and created a pressure where a secondary market really make sense.

You also saw a tremendous amount of money being invested in the private markets. That wasn’t happening years ago. Now you’re seeing large investors, Fidelity, T. Rowe Price.

Traditional public market investors, capital market investors.

They’re trying to gain that edge. They want to get into these companies as soon as they can, so if they go public, they want to be one of those first companies that’s investing in that company.

Structurally, did we get ahead of our skis the last two or three years, where we started giving public market valuations to private market companies?

I think that’s still consistent with supply and demand. The investors wanted that supply. They wanted to invest in those companies. They wanted an opportunity to get into those companies early on. I think that’s what you saw in 2015, is that there’s a huge amount of appetite to invest in those pre-IPO companies. We’ll see how that plays out as we go forward, but that was the market for 2015.

You’re very involved with TechNet, one of the very first technology policy organizations.

Nasdaq has been involved since the beginning, but I’ve personally been involved for 10 years.

What are some of the public policy issues that TechNet is currently concerned about, or working on?

TechNet’s main agenda is keeping US companies competitive. When you look at things that are inhibiting that, whether it be immigration reform, the fact that we have great talent that we educate here in the US, but we don’t allow them to stay. We don’t give them a visa so they can actually work at companies. The visa limits are expired. They’re done by March of every year, and companies still need to hire.

We’ve been pushing for high-skilled immigration reform, and we’re hopeful that in 2017, we’ll finally get something done in that area, once we have the election, and have a new President in place.

The other thing the US really needs to focus on is corporate tax rates. We have one of the highest corporate tax rates in the world. It does mean companies will look to invest elsewhere, because they have money offshore that they can’t bring back into the US, so that’s a big inhibitor of investing here in the US. Having some type of repatriation tax law would be important, but also just the overall corporate tax rates really need to be looked at, so that the US really maintains a competitive edge. Otherwise, companies will find ways to go to other countries.

And they do. Apple is a classic example of our most valuable public company, which has hundreds of billions of dollars that are not in the United States. It’s not that they don’t like the United States, it’s the taxes.

It’s the taxes.

This has become a national political question in the presidential race. The markets have been played as the villain. Bernie Sanders, for example, has said that we’ve been on this path for the past few decades of focusing on maximizing shareholder return, maximizing the return to capital, to assets, as opposed to investment in new equity, new building of new jobs. And even Donald Trump and Hillary Clinton have used Wall Street as a villain. What do you make of that political conversation?

It really should be tempered with, what are we doing to encourage more companies to access capital markets? Whether that would be private money or public money, how are we going to get more companies to raise money so that they can build great companies?

The jobs are going to come from new companies. That’s just the way it’s going to be. You need new IPOs, you need new small businesses, and the more that we can do from a regulatory environment that will ease that, and allow small business to access capital so that they can grow and hire people, that’s what we really need in this country.

A public company is always going to have to do their best job to maximize shareholder value. That is what, as executives of public companies, our job is to do, to maximize. That’s why the investors have you in place in the first place, to maximize shareholder value. That’s always going to be your key priority.

I do think, if we look at politics in Washington, what they can do is really decrease the amount of regulations so that small businesses have access to capital, and the ability to raise money, as well as different types of investors to have access to these startup companies. We don’t have a very strong venture market or community here.

There’s been several attempts online to create crowdfunding, or things like that, that may allow other people to invest. Other markets, Canada is a great example, they have very strong venture market where every average person is able to invest and participate in some of these great new companies.

This was part of the Jobs Act that still hasn’t been completely ironed out. It’s still uncertain how that’s going to work out.

Exactly. The Nasdaq private market, these are credit investors. It’s not for the average person to be able to invest in these companies. We have to decide how we’re going to allow the average investor to participate in the great startups. We are doing some of that with crowdfunding, and some of the niches that are online, but that’s outside the regular market. We need to figure that out.

Nasdaq is in so many different markets around the world, and you’ve acquired a number of companies, and your pace of acquisition is picking up. What are two or three of the acquisitions that have really moved the needle for you in the past year?

Nasdaq’s always been about finding ways to maximize what we’re currently doing well, and investing in companies where we think we can add value. We just bought ISE, which is the options market that’s owned by Deutsche Borse. We had already owned Philadelphia Stock Exchange a few years back, and that gave us 20 percent of the US options market.

Now with ISE, we have 40 percent of the US options market. The difference is, ISE is a complex option order flow, so it’s a different business, but it compliments very well what we’re doing any options market already. That was something that was an add-on that we think makes a lot of sense for us to be in this market.

We bought a company called Director Desk a few years ago. It’s an online board portal. BOARDVantage (also a Nasdaq business) is the same thing. Adding on to that business, and making sure that we had the best product on the market for board members is a goal of ours. Anything that really is additive to what we’re already doing, that we think we can run better, that we can grow and scale is what we’re known for.

Your stock price happens to be at an all-time high. As an executive officer of a company that is on a record run, what keeps you up at night? Do you ask, “OK, how do we top this?”

We did have record earnings in the second quarter. It is a lot of the hard work we have been doing over the last several years to diversify our businesses and really become more of a technology player, and that’s being recognized.

NASDAQ’s always been known for innovation. We were the first market to pioneer electronic trading 45 years ago, and we always want to be innovative. Where is the next place that we need to be investing? Whether it be areas like blockchain, which a lot of companies are taking a look at today, or artificial intelligence, machine learning. We’re always going to be looking at, how can we improve ourselves?

You are a financial technology company. Blockchain seems to be one of those fundamental technologies that every so often comes along, that prompts pundits to say, “This will change everything,” including markets. With blockchain at scale, will you even need a NASDAQ market?

That’s why we’re investing in blockchain. We run Nasdaq, and as I mentioned, we also run 70 exchanges around the world. In other markets, when you look at clearing a settlement, we offer those services as well for some of the markets that we operate. How can you apply blockchain to that? You look at the private market. How can you apply blockchain to that?

I was at an event recently and every large cap Fortune 500 company was looking at blockchain, and how it might apply to their business. It’s a big buzzword today, but I think it is the methodology — how can it make what you’re doing today transpire in a more efficient way? Using the ledger methodology, how can you make it more efficient? That’s what we’re looking at.

I’m old enough to have covered open source from the very beginning. It strikes me blockchain is similar. Open source was free software for everyone. If you’re Microsoft, that looked like the end of your business. That’s what everyone was saying. Here we are 30 years later, and Microsoft is one of the largest open-source contributors in the world.

Great companies adapt. You have to adapt, you have to innovate, and you have to be willing to disrupt yourself. If the market is moving, you’ve got to be making sure that you’re looking at how you can move with it. That’s one thing that we take great pride in is that we’re never satisfied with the status quo. We’re always looking to innovate.

Are there other potentially disruptive technologies or startups that you’re watching right now?

Big data. You have all this data, now what do you do with it? That’s where you get into a lot of artificial intelligence, and machine learning.

I imagine there’s a lot of data running through the Nasdaq network.

We own SMARTS, the surveillance business in Australia which surveils the market real-time. Obviously we have a natural extension of what we’re doing there (with machine learning). There’s definitely opportunities for us to use that type of technology to help us become more efficient at how we operate.

Can you give me a list of companies you’re excited about, that might be coming down the pipeline?

We don’t like to talk about a list of companies. I would say sectors, how about that? We all know the big companies that are out there. In 2000, I don’t think anybody realized the power we were going to have 15, 16 years from now, where you’re booking homes to stay at via the Internet. Instead of taxis, you’re doing it through your mobile phone.

I think that evolution of the Internet, and how companies are using it for services, are continuing to evolve. We’re excited about those companies that will access the market in the next couple years.

We’re very bullish on the tech economy that we’re going to see coming out in 2017, as well as biotech, a sector we’ve been extremely strong in over the years. When you look at the fact that there’s still thousands of diseases that need cures, there’s always going to be a need for more money to be raised for biotech companies. We’re excited that we’re the leader in the biotech space.

You’ve also begun to get companies to switch to Nasdaq. CSX was one, is that correct?

CSX Railroads switched to Nasdaq last year. TD Ameritrade, American Airlines has made a switch in the last couple years, Walgreens department stores. We really have diversified the type of companies that list on Nasdaq today, and we think that a lot of that is because companies do want to be associated with that growth and innovation that Nasdaq is known for.

What company doesn’t want to be a growth company? What company doesn’t want to be really maximizing their shareholder return? Nasdaq has a platform that allows those companies to do that.

If you can go back, with the wisdom you’ve had over several decade career and talk to yourself just coming out of college or high school, what advice would you give yourself?

I would probably say to have more fun. I work straight out of college and had great companies. I’ve only worked at two companies my whole career. I think that’s very, very rare for someone but now I’ll have more fun with it and then realize that it is a long journey, do well at your job.

If you do, whatever job you’re given, make sure you do the best at it and that’ll allow you to have other opportunities. I hear so many times that people are frustrated in their current job, you still have to do the best job you’ve been given and if you don’t do that well you’re never going get ahead so make sure you’re executing on the job you’re on.

It’s a good point because I think particularly in the technology industry people beat themselves up for not having a dream magical unicorn job. Sometimes work is work.

Work is work and if you’re not doing the job at hand extremely well, then you’re not going to get rewarded for anything else. I feel like if I had not been successful in my previous roles, I would never be the level that I’m at, at Nasdaq. You’ve always got to make sure you’re executing in your current role.

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