| SAN FRANCISCO/NEW YORK
SAN FRANCISCO/NEW YORK May 25 Silicon Valley
isn't quite ready to dump Morgan Stanley over the
Facebook IPO fiasco.
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
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.
"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.
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.
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.
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
"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 defense 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.
Morgan Stanley is still expected to face tougher scrutiny
"What was perceived as the best of the best got the Facebook
offering, and the general perception was it wasn't handled
perfectly," said Revolution's Savage. "They have a question to
answer now that they didn't have before."
Another way this ripples through the Valley, bankers said,
is that companies could solicit advice more frequently and
carefully from all their major underwriters, not just the bank
in the prime position, known as 'lead left' - a term for the
underwriter on the top left-hand side of the IPO prospectus.
"Having a real joint lead on an IPO - that's the counter
argument that has emerged from this," said one investment banker
from a rival firm.
But at this point, Silicon Valley is still expected to court
"There's a little bit of a tarnish on the Morgan Stanley
brand versus where they were a week ago. But is it going to
prevent them from being picked? I don't think so," a second
rival investment banker said.