Upstarts Advise Companies on Securities Offerings, Challenging Investment Banks

Wall Street Journal writers Maureen Farrell and Liz Hoffman reported last week that, “When Twitter Inc. was looking to raise $1 billion from investors earlier this month, it put out the usual calls to Wall Street banks.

“The social-media company also called Vijay Culas, who works out of rented office space on a busy stretch of highway in San Mateo, Calif.

“A former Goldman Sachs Group Inc. banker who hung out a shingle in 2014, Mr. Culas helped Twitter negotiate with its banks and ultimately sell a type of hybrid bond for a 1% fee, one of the cheapest offerings in recent memory.”

The Journal writers explained that, “Mr. Culas is among a handful of upstart advisers who are challenging investment banks on turf once thought impenetrable: the $7 billion-a-year business of handling complex stock-related transactions.”

Jason Wood, who spent nine years at JPMorgan Chase & Co., went solo in 2013. A year later, Mr. Culas launched Matthews South, named for his Harvard University dorm,” the article said.

Farrell and Hoffman pointed out that, “Without underwriting or trading arms, these advisers say they can give unbiased judgment and help clients wrangle a horde of hungry bankers. Their pitch is resonating, especially in Silicon Valley, where finance departments tend to be less robust and more suspicious of Wall Street.

All told, Messrs. Wood and Culas have worked on one-third of the roughly 30 convertible bond sales by U.S.-listed tech companies this year, including offerings by Square Inc., Etsy Inc. and Twilio Inc.,according to people familiar with the deals.”

Last week’s article added, “Their success is the latest sign that Wall Street’s moat is shallower than it used to be. Investment banks were once one-stop shops, controlling each step of a big securities offering. Now they look vulnerable to the same unbundling that has hit cable television, challenged by a growing number of a la carte in-home entertainment options.

Cheaper computing power and reams of market data allow solo bankers to compete with big banks. Mr. Wood, who works out of his Bay Area house, and Mr. Culas have about a dozen employees between them.”


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