A Silicon Valley stock exchange that encourages long-term thinking about short-term profits has brought two leading technology companies to their first listings, reflecting the growing popularity of sustainable investing.
Twilio Inc., a $ 67 billion software company; and Asana Inc., a Facebook-operated cloud software company with approximately $ 10 billion Inc.
Co-founder Dustin Moskovitz, are the first two companies to agree on dual listing of their shares on the Long-Term Stock Exchange. The CEOs of both companies, also listed on the New York Stock Exchange, were early investors in LTSE with less than 1.5% equity stakes.
In order to be listed on the LTSE in August, Twilio and Asana agree a number of commitments such as aligning executive and board compensation with long-term performance; Consideration of customers and employees; and explain how the company’s board of directors oversees its long-term strategy. These commitments must be specific guidelines that can be monitored by LTSE.
Companies and the stock market hope the listings will be a signal that their stocks will appeal to long-term investors and potentially bring in some of the hundreds of billions of dollars that are being held in funds for environmental, social and governance investment. It would also give credibility to LTSE, which has long been embraced by venture capitalists and tech creators but doesn’t yet list a single company.
Exchanges often serve as gatekeepers for corporate governance and provide a platform for trading a company’s stocks. There are more than a dozen stock exchanges in the US, and most of them only act as trading platforms.
“We are entering an area where business expectations are higher,” said Jeff Lawson, CEO of Twilio.
David Paul Morris / Bloomberg News
The two largest in the US, New York Stock Exchange and Nasdaq, are dominant players in both respects. These exchanges have also recently stepped up their ESG advisory services for their publicly traded companies.
The Long-Term Stock Exchange started trading stocks in September, and only a fraction of the stocks are traded on their platform. According to its founder and executive Eric Ries, his main focus is on ensuring stakeholder-oriented corporate management.
Investors are demanding that companies pay more attention to their progress toward social and environmental goals, said Jeff Lawson, CEO of Twilio.
“We’re starting to enter an area where business expectations are higher,” he said. “LTSE takes the various commitments and codifies them. It’s the companies that put their money where their mouth is. “
Twilio and Asana are still working on what their exact commitments will be, but Messrs. Lawson and Moskovitz said they would likely align with what the companies are already doing.
Twilio, for example, is already focusing on its social impact. Mr. Lawson highlighted Twilio.org, which supports nonprofits and social enterprises and is funded with 1% of Twilio’s equity. The company has pledged $ 10 million to Covax, a global initiative to vaccinate low-income countries against Covid-19. Lawson said he hoped the LTSE listing could attract more long-term investors.
“The material benefit of being seen as an ESG leader has increased with so much money poured in.”
Asana’s Mr. Moskovitz noted the company’s commitment to building an inclusive and diverse workforce. (Asana’s website shows that 30% of U.S. employees identify as Asian, while 46% identify as Caucasian, 49% identify as male, and 43% identify as female.)
In 2011, Mr. Ries suggested the idea of a long-term exchange in his book “The Lean Startup”. He has received support from Silicon Valley entrepreneurs, including venture capitalist Marc Andreessen and LinkedIn co-founder Reid Hoffman.
The decision to have companies write their own long-term thematic engagements wasn’t the original plan for the exchange. On its way to approval by the Securities and Exchange Commission, LTSE eventually abandoned more ambitious requirement plans for listing companies, including banning quarterly guidelines and banning bonuses for executives tied to short-term financial goals.
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The search for the first listings also turned out to be difficult. To sweeten the deal, LTSE cut its listing fee by 50% in 2021. To allay executives’ concerns about the low trading volume on the new exchange, LTSE suggested the idea of double listing to companies, which means that their stocks are primarily listed on the Nasdaq or NYSE.
Other exchanges have attempted to undermine the NYSE and Nasdaq’s dominance in corporate listings. Neither made much progress. IEX Group Inc. spent years promoting companies to list on its emerging stock exchange, but closed its listing business in 2019 after winning just one.
Long-time LTSE supporter Mr Moskovitz said he was considering double listing with LTSE last fall when Asana went public, but the timing didn’t feel right. Asana was already doing something else by listing it directly on the NYSE. Adding another twist to his IPO felt too much for investors, he said, despite saying he made LTSE-inspired commitments in his founding letter and Asana’s listing filing at the time of going public.
“We wanted to establish ourselves as a stock corporation,” said Moskovitz. “We now feel on a stronger basis to take this new step.”
In addition to Twilio and Asana, expense reporting software company Expensify Inc. is also considering a double listing with LTSE when it goes public, people familiar with the matter said. Last year Airbnb Inc.
Considered dual listing with LTSE at the time of the IPO, but decided against it, said people familiar with the matter.
Global sustainable funds assets rose to nearly $ 2 trillion by the end of the first quarter, according to Morningstar. Investors put $ 68 billion in BlackRock Inc.’s
sustainable products last year.
“The material benefit of being viewed as an ESG leader has increased with so much money poured in,” said Ries.
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In recognition of the importance of this investment segment, companies going public present themselves as mission-oriented, say bankers and lawyers. Part of the recent IPO of Swedish oat milk maker Oatly Group AB went directly to ESG funds, people familiar with the matter said. Online thrift store thredUP Inc.
In a submission prior to going public, it not only described itself as mission-oriented, but also devoted an entire section to ESG.
Lawson said LTSE can help companies make the ESG pledges. “When LTSE helps connect companies with investors who also value things like ESG and long-term vision, that’s a good thing,” he said.
Investors have taken ESG funds to new heights in 2020, and federal agencies are watching it. WSJ explains why regulators scrutinize ethical and sustainable mutual funds. Photo illustration: Alex Kuzoian
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