Redfin had one of the better IPOs in 2017. In a process that has become more hit-or-miss in recent years, Redfin’s stock spiked right away on the first day of trading, and it has stayed well above its initial price for the last six months.
It didn’t always seem like things would work out that way as the tech-powered real estate brokerage prepared to go public. In a LinkedIn blog post, Redfin CEO Glenn Kelman pulled back the curtain on the process of talking investors into buying stock in a soon-to-be-public. Check out Kelman’s full diary for in-depth reflection of everything from transportation between meetings, to setting the right stock price, to how he hoped the stock would do out of the gate, and continue reading for highlights.
One thing that stood out was the emotional stress the process can put on company leaders. Kelman recounted in great detail the ups and downs of laying out the company to investors during 56 “roadshow” meeting in cities around the country over a few weeks prior to its July 2017 IPO.
Instead of being bathed in a golden light, I found myself poked and prodded like Kate McKinnon in a Saturday Night Live skit. And what I learned is that seeking approval from one person after another will tear your heart out. I learned to see everything I loved, at least for a moment, from an appraising distance, so I could stop nit-picking it or promoting it or defending the way it is now, and instead reimagine it at its full potential. I learned that sometimes you should just tell people the ugliest things about you because those are the things that people trust the most.
And I learned that very rich people insist on getting the whole truth about a business before buying its stock, which means that civil society is still capable of producing the whole truth about topics that are far more important than Redfin’s stock. There should be a roadshow for the healthcare system and education reform, with private jets and black cars for the doctors and teachers involved, but also an army of IPO lawyers and regulators to assure the skeptics that everything in the roadshow is true.
The roadshow didn’t get off to the start Kelman had imagined. He had high expectations for going public, writing that he “wanted it to be a triumph for everyone I worked with, all the people who could have made more money over the past decade at Amazon or Google, Sotheby’s or Corcoran.”
After the first week of pitching to investors, bankers told Redfin executives they were only a third of the way to where a successful IPO would be in terms of stock orders. Kelman didn’t take the news well.
I spent that weekend at home despondent, shaking my head grimly when my six-year-old tried to get me into the bouncy house at a birthday party, brooding over a competitor’s claim that it would be able to dissuade investors from buying our stock. I expected our first day of trading the following Friday to be a fiasco.
Redfin has always been a tough company to understand. A key question it had to answer in the lead up to its IPO was whether the Seattle company was a real estate firm with a fancy website, or a technology platform focused on real estate. Kelman delved into that dichotomy in his diary.
What had been at stake in Redfin’s roadshow was whether we could make money in a world of Internet giants, but also whether we could sell our stock without selling out. We’d known some investors would get hung up on the cost of our real estate agents’ salaries and health insurance, or the amount we saved homebuyers without any data that it drove sales. We never tried to talk them out of those concerns.
To portfolio managers who wanted to see the company as nothing more than a real estate website without the costs of customer service, we had said we were as proud of cleaning out a listing customer’s closets as we were about inventing map-based search.
Keeping with the theme of staying true to itself — Redfin espouses philosophies like “everyone sweeps the floors” and “we’re all paid by the sweat of an agent’s brow” — the Redfin team decided to fly commercial for the majority of its travels, a first for many of the bankers involved.
Our would-be investors loved this thrift, and our bankers, despite noting that they had never run a roadshow on commercial flights, gamely celebrated it. But then we found ourselves, each and every night on the roadshow’s first week, flights delayed for hours, eating Sbarro, lugging a box of prospectuses through La Guardia, Logan or O’Hare, unable to reach the hotel until 1 a.m.
Goldman never complained.
I went from banker to banker at the airport, apologizing for the decision not to use a private jet. Later that week, I heard from a board member about a recent IPO in which the company going public paid for two private planes, one for the CEO alone, and the other for everyone else.
It may have been the intense commitment to these principles, or that grey area between tech and real estate that made Redfin a tough nut to crack for investors. But Kelman writes that things did turn around, though he still isn’t sure what happened.
Maybe, since our roadshow was in the middle of earnings season, the fund managers just needed a Saturday to make up their minds. Maybe they started to hear the sound that they are in the end most exquisitely attuned to, of other hooves beginning to move across the plain. We wanted to believe that everything strange about our half-website, half-broker business was why investors didn’t decide right away, but also why so many came our way in the end. We’ll never know.
All we know is that between Friday night and Monday morning in San Francisco, the number of orders for our stock had tripled. And after every meeting, more orders came pouring in. When we left California for the Midwest, the roadshow had gone from a death-march to a celebration. On the last day, when we had orders for twenty-three times times the actual number of shares we had to sell, folks from our Baltimore office crowded onto the private plane, filling every seat for the trip back to New York. The 40 longest-tenured employees would be there, to celebrate a harrowing, happy decade together. Someone opened a bottle of champagne.
To close out his diary, Kelman dials up a cycling analogy. I’ve spotted him a couple times around town on his bike, but never in a competitive setting. Apparently he wasn’t great at it. In his own words: “I was one of the worst bicycle riders who ever pinned a number to his jersey.”
Unless you’re one of those rare gods who can pedal into the wind alone, you never break out into the open road until the final two hundred meters of a race. Otherwise, you ride within 24 inches of a competitor’s back-wheel, wondering how to maintain that pace for another 30 seconds, but then doing that for hours. Everyone is jostling you and pinching off the line you want to take around a corner, and trying to ditch you on murderous descents, all because of a tiny piece of string strung across an arbitrary finish line.
If you were riding for yourself and not your teammates, or if there was a way to pull out without having to pedal home alone, you would. After my first race, I realized that it was actually a relief not to have the talent of a Greg LeMond, because I still wouldn’t want to turn myself inside out every day to earn a living. Business has often been that hard for me too. Almost nothing can make you more miserable than when your company is struggling, and only then do you realize that this is exactly when it’s almost impossible for a CEO to quit.
But then within sight of the line, the race opens up, almost like a hallucination, and you can finally see the world in front of you. You forget for just a moment about all the races, wrecks and failures behind you and ahead of you. And then just like that, the race is over, and you’re disoriented and relieved and already nostalgic and completely happy in a way you’ve never been before. This was how I felt when I walked out of the NASDAQ and into our life as a public company. That was four months ago. I haven’t checked the stock price since.
For the record, Redfin stock closed Friday at $26.08, 33 percent above its opening price on the stock market and about 73 percent more than the share price for investors. Read Kelman’s “Diary of an IPO” for the full story.