Coinbase direct listing: What to expect as a crypto investor

Phil Haslett, EquityZen co-founder & chief revenue officer, joins Yahoo Finance to discuss Coinbase direct listing outlook and risks in crypto space.

Video transcript

BRIAN SOZZI: Crypto fans and investors are anxiously awaiting the debut of Coinbase on the NASDAQ today. The crypto exchange is going public via a direct listing. While the reference price for the stock was set at $250 on Tuesday evening, most experts think Coinbase shares can have a blowout first day of trading and finish the session well above that level. Phil Haslett, EquityZen co-founder and chief revenue officer, Phil, where are you at on Coinbase's evaluation? We've seen estimates all over the map. The prevailing one, $100 billion. Are you there on $100 billion valuation for Coinbase?

PHIL HASLETT: Yeah, good morning. I think that's a fair assessment and estimate. This $250 per share price is kind of just a reference point, mostly so that just indexes and indices and other brokerages have kind of some point to point to and what the price was yesterday. Look, I mean, shares were trading between $200 to $375 in Q1, with an average price of $343. And that was before the company just casually dropped the mic and said, oh, we did $1.8 billion of revenue in Q1 and had $700 million net income. So I would expect to see something well north of this $250 price.

MYLES UDLAND: And just, Phil, going back in time one week to when Coinbase came out with those preliminary results ahead of the direct listing, you know, we've really seen a lot of, I guess, we could call that innovation in how companies are coming public. But now, for Coinbase to come out and release its results right before it manages to come to market, is this kind of setting up for maybe some competitors or some follow-ons? You know, I'm thinking of Robinhood and the like as they come public? Like, here's something that you should want to do right before you come public to kind of build goodwill, not only with your business, but again, your future investor base.

PHIL HASLETT: Yeah, I think Coinbase kind of took the numbers and said, if we can show it, we ought to because these numbers are really strong and powerful, given that the direct listing will allow a lot of shares to trade immediately, compared to a traditional IPO, where you only see maybe 10% or 15% of shares outstanding able to trade. I think it was in Coinbase's best interest to put their best foot forward. And fortunately, they had a really great quarter to do-- or to report, rather. I would say that other companies that probably had lackluster results wouldn't take the same approach.

Coinbase is doing something a little novel, kind of through the full stack, right? From the business they started in 2012 to the way that they're coming public through direct listing to adding in this kind of additional information just a few days before IPO. So I think-- or direct listing. So I it's kind of a really exciting time for Bitcoin enthusiasts, for early stage investors that are part of the company, and I'm excited to see how it plays out later today.

BRIAN SOZZI: Yeah, Phil, my sources have told me that there's a lot of excitement inside Coinbase with those early investors and also employees. How concerned are you about them dumping shares on the market relatively early and pressuring those newbie investors who have been drawn into this excitement?

PHIL HASLETT: I think it's a perfectly fine thing to happen. You know, this is how markets operate. You're supposed to make shares available to trade. And I actually really love the direct listing approach versus a traditional IPO. Because for all those employees, for example, that worked very hard to make this company a success-- I think it's something like 1,700 employees-- in a traditional IPO, they would watch the bell get rung today. They would watch the stock go up hopefully 20% or 30%. And then they would have to sit on their hands for six months and watch this ticker go up, down, left, and sideways, while they couldn't trade.

Whereas with the direct listing, if they need liquidity now, they're able to do so. It's something that we try to really champion at EquityZen that liquidity for these employees that have been parts of companies that are private for eight, nine, 10 years, liquidity is really important. And so I think Coinbase is embracing that. If that means that the stock trades lower than a typical IPO, I think that's OK.

One of the benefits of this direct listing for Coinbase, and therefore for its employees, is that they didn't take on a bunch of dilution through a new IPO route. And that's rightfully so because the company's generating a couple of billion dollars in net income. Why bother with taking institutional money at some price that is not really fair and accurately reflects the business? So I think it's an OK transfer of, basically, wealth and ownership in the company. There's a lot of excitement around the name. There's a lot of retail and institutional investors that I'm sure will pounce on the opportunity this morning or later this afternoon.

MYLES UDLAND: And Phil, just thinking about your business where you're creating liquidity in secondary markets in some of these names, what has, like, the SPAC boom done for or against your business? How does that fit into some of the names that-- I'm thinking of, like, a Stripe, where they have a valuation that's nine figures and a lot of employees probably with a lot of liquidity concerns. How does that all kind of factor in? Because we are starting to see the gears turn for more companies come public. But I think still some really high profile businesses would maybe rather work through you guys to get those liquidity events than to go through the whole process of even a direct listing.

PHIL HASLETT: Yeah, absolutely. So yeah, EquityZen's worked with over 250 different pre-IPO companies and helping out with liquidity for their employees and ex-employees. We've seen a lot of interest for companies that say, hey, if we can just do liquidity privately, rather than going through the full kind of process of going public through a SPAC or getting acquired or doing a direct listing like Coinbase, we may as well just address liquidity internally. And so at EquityZen, we're seeing a lot of that happen.

We've also seen a lot of renewed interest from our retail investor base in pre-IPO companies because of this SPAC boom, because of the IPO window that's been wide open. So we've seen something like a 500% increase year over year in investor demand across the platform, which is really exciting. That makes for a great time to have a pre-IPO marketplace like we do. As it relates to the SPAC boom, I think the excitement is probably that there are a lot of companies that, in traditional IPO route, may not be ready to go public in the next 12 to 18 months, but can actually take advantage of the SPAC route because it's a little bit quicker to get out.

There's obviously a lot of investor interest on the SPAC side in companies that are a little bit earlier stage, rather than something that's a bit more mature like a Stripe or like Coinbase. And so I think you've seen that recently with companies like ChargePoint, with DraftKings a year ago, that have been really successful and are probably going to be the template for a lot of these unicorn companies to go public maybe a little sooner than they had anticipated. So that's leading to a lot of excitement for investors as well.

BRIAN SOZZI: Phil, with the 30 seconds we have left, what's the biggest risk you see to Coinbase for the rest of the year?

PHIL HASLETT: Honestly, it's just the volatility and whether investors can stomach it, right? There's a lot of disclosures and disclaimers in the filings that say, hey, we at Coinbase are here to tell you that our revenue is not a nice straight line upwards, right? It is turbulent. And it is correlated to Bitcoin prices and volatility. And so, I think the biggest risk is, one, a huge pullback in overall Bitcoin prices and crypto pricing.

And two is really whether investors have the stomach for it, right? We've seen, even in the life cycle of Coinbase, probably three or four 50% plus drops in Bitcoin prices over that period. The question is really whether those retail investors and those institutional investors that buy into Coinbase are going to be OK with that because it's going to feed into the bottom line for Coinbase.

BRIAN SOZZI: Phil Haslett, EquityZen co-founder and chief revenue officer, always good to see you.