Robinhood’s highly anticipated IPO last month was led by Wall Street heavy hitters Goldman Sachs and JPMorgan Chase.
But the extensive list of underwriters also included boutique minority-owned firms Ramirez & Co. and Siebert Williams Shank.
Of the 17 firms that helped underwrite the offering, four were owned by minorities, women or military veterans, a category known as MWVBEs.
It’s becoming a trend: 13 of the 25 biggest IPOs of U.S. tech companies in the past year included two or more such firms, according to FactSet.
Tech companies and Wall Street banks, long run and controlled predominantly by white men, came under intense pressure in mid-2020 to improve their diversity after the police murder of George Floyd and the Black Lives Matter protests that followed. Companies made promises to do better, creating social justice philanthropic programs, commiting to more diverse hiring practices, and adding internships for minority candidates, among other moves.
At the time, the IPO market was still mostly closed from the Covid-19 shutdowns and subsequent economic downturn. It slowly reopened in July and August and then flung open in September, when Snowflake held the largest U.S. software offering on record.
In Snowflake’s IPO, the cloud database vendor included four MWVBEs as underwriters — the same four that Robinhood later used. Unity’s share sale, which came right after Snowflake’s, had two of the firms. Airbnb’s IPO in December included a dozen.
Airbnb surged in its IPO despite pandemic disruption
Despite the progress, Cynthia DiBartolo isn’t ready to celebrate.
Over 35 years after entering the finance industry, and a decade after founding investment firm Tigress Financial Partners, DiBartolo has emerged as a fierce advocate for women and minority participation in deal-making. Even though Robinhood added four firms to its roster of underwriters, DiBartolo said that for a company touting its role in democratizing investing, the opportunity was there to make a real splash.
“While we applaud what they did, I think they could’ve brought in more firms to make it more inclusive and make an bigger statement,” DiBartolo said in an interview. “Long before Robinhood existed, long before anyone heard of that company, diverse firms were fighting to bring equality of opportunity to diverse investors. We didn’t have the balance sheet or fire power of a Robinhood.”
In July, Tigress became the first disabled- and woman-owned floor broker to become a member of the New York Stock Exchange. Previously, her firm was among five MWVBEs that served as underwriters for cloud software vendor Monday.com’s IPO.
Now, DiBartolo is working to make sure that the dozens of firms like hers get a regular seat at the table.
DiBartolo created what she calls a diversity questionnaire, or request for information (RFI), for participation in offerings. The objective, she said, is make it easier for companies selling stock, issuing debt or doing share buybacks to vet minority and women-owned firms. American Airlines, she said, has already sent the RFI to firms in the category for future deals.
‘Everyone has reputational risk’
JPMorgan is taking her work a step further, DiBartolo said. The bank is collecting the data from the questionnaires filled out by MWVBEs to build a database that can automate the due diligence process for its clients. DiBartolo said she’s talking to other Wall Street banks about doing something similar.
A JPMorgan spokesperson confirmed the process is underway.
“JPMorgan’s goal is to expand the opportunity for more minority- and women-led firms to be included in debt and equity capital markets issuances,” the company said in an email. “We are building a searchable database based on a streamlined industry RFI which will allow us to evaluate better the strengths and capabilities each firm has to offer our issuer clients.”
The RFI asks firms to fill out details about their principals, the work they’ve done, their expertise and whether there are any legal or regulatory issues that need to be disclosed.
“Everyone has reputational risk,” DiBartolo said. “You want to know who the firms are, who’s behind them, how much of the workforce is diverse, what’s the regulatory history, and is there any pending litigation. These are all questions you should ask.”
DiBartolo is part of other organizations taking different approaches to diversify deal making. At Rev. Jesse Jackson Sr.’s Rainbow PUSH Coalition, an organization fighting for social justice, DiBartolo is chairperson of the steering committee for financial services.
Inside Rainbow PUSH is a 25-year-old group called The Wall Street Project, which advocates for women- and minority-owned businesses in finance. Rebecca Cruz, director of business development at the project, said anytime she reads about a U.S. company that’s raising $100 million or more in an IPO, she sends a letter to the CEO and CFO. In the letter, she encourages the companies to consider including some of the eight minority-owned firms that are members of the organization, providing some detail on what the MWVBEs have accomplished.
Cruz said she follows news clips and press releases about confidential IPO filings so she can reach companies before their prospectuses get published to get the conversations started earlier.
“We’re not pressuring them, we’re saying it’s good for business to include these firms on the transaction,” she said. “The companies that we work with all have proven themselves on Wall Street in transactions. These aren’t fly-by-night firms.”
Many of the firms have been around for decades, managing money for clients, trading, underwriting municipal bond sales and corporate debt deals and, in some cases, doing proprietary research.
While they’re a tiny fraction of the size of the Wall Street giants and are even much smaller than well-known mid-market firms like William Blair, Raymond James and Piper Jaffray, Cruz is out to show companies that it’s not just a good public relations decision to add diversity to their underwriter list. It’s also good business that brings opportunities to reach different classes of investors.
Siebert Williams Shank was formed in a 2019 merger of two firms founded in the 1990s, Siebert Cisneros Shank the Williams Capital Group. The firm has been very active over the past 12 months, helping underwrite IPOs for Robinhood, Krispy Kreme, Marqeta, Oatly, Bumble, Affirm, Airbnb and many others.
Sobani Warner is the head of equities at Siebert Williams Shank and was director of equity at Williams starting in 2000. She said that while the firm, in its various parts, has been underwriting equity deals for two decades, there’s been a clear sea-change in the past year and a half as shareholders and activist groups have been demanding stronger action towards diversity.
“The tech companies along with companies in a variety of industries, perhaps all industries, are seeking to play their part in this really positive transition we’re going through,” Warner said in an interview.
Improving economics
Still, firms like Siebert Williams Shank tend to get a tiny combined sliver of the overall IPO. An analysis of fee data from S&P Global Market Intelligence and CNBC published last year showed that between 2016 and the first half of 2020, MWVBEs each made about $167,620 per IPO and secondary offering, compared to $1.4 million per deal for middle-market firms.
Warner said there has been “positive movement” in deal economics recently, though she didn’t provide specifics. More important than the revenue from any specific offering, she said, is the opportunity to show what these firms can offer a company, so the relationship is there when its time for debt financing, strategic advisory help and even share buybacks.
“This is a good way for us to get to know them and for them to understand our capabilities,” Warner said. “The IPO is perhaps the first transaction we do but the expectation is that the IPO will be the first of many.”
