2019-11-11_Bloomberg_Businessweek

◼ FINANCE Bloomberg Businessweek November 11, 2019

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THEBOTTOMLINE In a citywherevastamountsofstartupwealth

have been swirling around for years, there’s a whiff of caution in the

air after some high-profile IPOs disappointed.

● TheBayAreais stillmintingmillionaires,but

techiesaren’tsplashingoutliketheyplanned

SanFrancisco’sIPO

BoomGetsMuted

It wasmeanttobethelatestSanFranciscogold

rush.Aftera startupboomthatsawtechunicorns

spendanunprecedentedamountoftimeonthe

privatemarket—amassingloftyvaluationsinthe

process—thiswastheyearinwhichdreamsofini-

tialpublicofferingrichesweresupposedtobecome

a reality.A cityalreadyflushwithwealthgirdedfor

a spendingspreebynewlymademillionaires.

ThenLyftsank,Ubertumbled,Slacksagged,

andWeWork’sofferingcollapsedinanepicbust.

SanFranciscohomesaleshaveslowed,withprices

evenfallinginsomepartsoftheBayArea.Party

plannersareparingbackonce-ostentatiouscel-

ebrations.Somestartupemployeeshavebeenleft

withholdingsworthlessthantheyexpected—or

willhavetowaitevenlongerfora payoutastheir

companiesdelayplanstogopublic.“Alotofpeople

joined these big startups with the hope of making a

lotofmoney,andtheythoughtthiswasgoingtobe

whenit happened,”saysBrandonSmith,director

ofestateplanningatWetherbyAssetManagement.

A cool-downmayactuallybewelcomeformany

ina regiongrapplingwithdeepeninginequality

andthecountry’smostexpensivehousingmar-

kets.Theeffectsofthechangearepalpablein

manyareas:InthespringtheprospectofIPO-

fueleddemandcausedsomehomebuyerstorush

tomakedeals,tryingtobeatrisingprices,real

estatebrokerssay.Nowthefrenzyhasdieddown.

Theflopshaveledtohousingseminarssuch

asoneheldinOctoberbySanJoserealestate

agentRobertCruzcalled“IPOsAreinTrouble,Is

HousingNext?”Closetoa dozenpeopleconsider-

ingbuyinga homecametotheevent,including

someinthetechindustry.“Inourmarketthere

area lotoftechbuyersreadingnegativeheadlines

aboutIPOs,”Cruzsays.

But while some big-ticket purchases may

be scaledback, day-to-dayspending forSan

Francisco’stechandinvestingeliteis littlechanged,

saysSmith,thewealthmanager.Hedoesn’texpect

hisclientswillmakecutstoprivateschooltuitions

orbigvacationbudgets.BrettThurber,whoowns

NewWheel,anelectricbikestoreinSanFrancisco,

sayseverythinghasbeengoingwell—betterthan

normal,infact.“Wedohavea lotofpeoplewho

areintechnology,andtheyseemtobedoingall

right,”hesays.“Inthisstrata,it’snotthatexpen-

sivetospend$10,000onane-bike.”

Therewillstillbeabout4,500newmillionaires

intheBayAreafromthisyear’sIPOs,according

toDenizKahramaner,founderofdata-drivenreal

estatebrokerageAtlasa.AndsomeIPOshavehad

betterstarts.SanFrancisco-basedPinterestInc.

atonepointnearlydoubledinprice.Itslock-up

period,whenearlyemployeesandinvestorsare

restrictedfromsellingshares,expiredinOctober.

Thestockis nowjustaheadofitsIPOprice.

Forthepresent,thebigissuemaybepublicper-

ception.Withsharepricesflounderingandcriticism

growingofprofligatestartupspending,it might

notlookgoodforexecutivestobeseenthrowing

moneyaround.Thatmeansrequestsforeventplan-

nerstotonedownthisyear’sholidayparty.Anna

MarieRembold,presidentofAnnaMarieEvents,

says,“Clientswillbelike,‘Hey,willyoumakeit look

reallynicebutnottooexpensive?’Becausethey

don’twanttohearfromemployeeslater,‘Whydid

youspendsomuchmoney?’” �Noah Buhayar,

Sophie Alexander, and Candy Cheng

arguethata mark-to-markettaxcouldfallheavily

onentrepreneursinhigh-risk,high-returnventures

whileleavingwealthypeoplewithmoreconserva-

tiveinvestmentsrelativelyuntouched.

Tosurviveconstitutionalscrutiny,scholarssay,

a wealthtaxmightberedesignedtolookmorelike

a taxonincome.Orperhapsaspectsofthemark-

to-marketandwealthtaxescouldbecombinedto

makethemworkbetter.Forboththewealthyand

theU.S.Treasury,the“detailsarereallygoingto

matter,”saysDeloitte’sTraub.A futureDemocratic

Congresscouldintheendpursue“muchlesssexy,

incremental”changes,saysUniversityofChicago

financeprofessorEricZwick.Abetter-designed

andhighercorporatetax,forexample,couldtake

cashfrombillionaireshareholdersthattheyaren’t

payingontheirindividualreturns.“There’sa lotof

roomtoimproveexistingtaxes,”Zwicksays.“Butit

doesn’tlookasgoodona bumpersticker,soI’mnot

surprisedthatpoliticiansaren’tjumpingonthat.”

�BenSteverman,withTomMaloney

THE BOTTOM LINE The very wealthy may never have to sell the

majority of their assets, which makes them harder to tax. One way

to change that: Put a levy on their unrealized gains.

0

● Change in share

price from IPO

throughNov.5, 2019

▲ Pinterest 7.7%

▲ Levi Strauss 2.1%

▼ Uber 37.7%

▼ Lyft 42.5%

▼ Slack* 46.1%

*SLACK WAS A DIRECT LISTING, SO THE PERCENTAGE CHANGE SHOWN IS SINCE ITS OPENING PRICE. DATA: COMPILED BY BLOOOMBERG