Silicon Valley not ready to dump Morgan Stanley over Facebook fiasco

New York/ San Francisco : It could be said that playing a role in botching the world’s biggest tech initial public offering would be enough to kick its lead banker out of the club, or at least to the curb, but a tarnished image hasn’t necessarily dented Morgan Stanley’s position as a go-to underwriter for Silicon Valley, according to bankers, venture capitalists and start-ups.

The reasons run from the unusual size of the Facebook deal - a $16 billion offering - to blaming the Nasdaq, to the strong relationships Morgan Stanley’s lead tech banker Michael Grimes and his team have crafted over the years with deep-pocketed venture capitalist firms and executives in the San Francisco Bay Area.

A week after the Facebook fallout, Morgan Stanley is - according to Silicon Valley sources - counting on these strengths to trump investor anger and lawsuits related to the move by its analyst to cut his forecasts for Facebook’s revenue and earnings just days ahead of the IPO and then only tell the firm’s major clients rather than publish those revisions widely.

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

“It’s still going to be the rare occasion when somebody who has the chance to have them, leaves them out,” said Scott Sandell, a venture capitalist at NEA, speaking about Morgan Stanley and its main rival in the Valley, Goldman Sachs.

[caption id=“attachment_320924” align=“alignleft” width=“380” caption=“Morgan Stanley was the No. 1 bookrunner for U.S. technology IPOs last year. AP”]  [/caption]

Morgan Stanley was the No. 1 bookrunner for U.S. technology IPOs last year, advising on 16 of the 37 new issues, according to data from Thomson Reuters. So far this year, it has held on to that top spot.

Impact Shorts

More Shorts

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

As Trump weaponises tariff, Fed sees a bigger worry: Not jobs, but rising prices in America

There are at least half a dozen high-profile technology companies with pending IPOs that have already selected Morgan Stanley as a lead bookrunner, including Palo Alto Networks and ServiceNow. And those are not expected to be derailed, or delayed, said sources close to the matter. A spokesperson for Palo Alto Networks declined to comment. ServiceNow was not available for comment.

“I still think very highly of Morgan Stanley,” said Jef Graham, a serial entrepreneur who is currently chief executive of RGB Networks, an online video-advertising company that could go public next year. He has worked with the bank on several merger and acquisition deals.

One reason: tech issuers know the big mutual funds and other institutional investors who will buy the largest chunks of their shares respect Morgan Stanley, in part because the bank is very selective about the issuers it represents.

“Goldman and Morgan Stanley on your (prospectus) cover recently - it’s been a stamp of approval,” said Tige Savage, a venture capitalist at Revolution LLC.

BLAME GAME

Leading tech investors said that while Morgan Stanley is being thrown under the bus for some of the unprecedented events surrounding Facebook’s IPO, there is plenty of blame to go around.

“Morgan Stanley’s services are a commodity and it is hard to blame them specifically because there are many people involved in the decision,” said one of the investors, requesting anonymity because his firm has held discussions with management.

The bank on Thursday also pointed the finger at Nasdaq for not getting trade execution data from the exchange in a timely way on the initial day of trading.

And the final line of defence for Morgan Stanley that’s now doing the rounds of the Valley: the Facebook IPO was a one-off - a giant offering in social media, a relatively untested sector that any bank could have mishandled.

“It’s a problem with the IPO system, not Morgan Stanley specifically. If it was another bank they would have had similar problems,” said a hedge fund manager who attended the Facebook IPO roadshow and closely followed other Morgan Stanley-run tech IPOs such as Zynga late last year.

“There may be some short-term decisions that go to other banks. But it’s not like any other bank would have been less incompetent on the Facebook IPO,” he added.

And amid a flurry of headlines this week about subpoenas and lawsuits against the firm, tech start-ups are keenly aware Morgan Stanley did succeed with Facebook by an important metric: making sure a company got the maximum amount of cash.

If things go wrong, entrepreneurs know the bank has the resources to step in and buy shares to support the stock, as Morgan Stanley did on Friday, Facebook’s first day of trading and the only day it closed above its IPO price. Though the effort to keep the stock above $38 a share proved fleeting, the move will likely be a positive for future clients.

“You never know if the market is going to be hot or cold the day you price, and you need the bank to be there to support you,” said Glenn Solomon, a partner at GGV Capital.

Reuters