From Vox: Barry McCarthy, the pioneer behind a novel method to take companies public, is leaving his role as the chief financial officer at Spotify. It’s a major loss for the streaming audio company.
McCarthy may not be well known beyond the ranks of Wall Street and Silicon Valley, but the idea he developed last year to take Spotify public — what is known as a direct listing — is one of the most important recent developments in the world of finance. When a company opts for a direct listing instead of a traditional IPO, it goes public without selling any new shares and essentially lets the market “figure out” the pricing on the first day of trading.
The introduction of direct listings and the momentum that they have picked up in the last few months have elevated McCarthy into something of an elder statesmen in the world of tech.
McCarthy, 66, is expected to retire from the CFO role in January and to rejoin Spotify’s board of directors, where he previously served before taking a seat in the Spotify C-suite. McCarthy’s decision to become CFO gave gravitas to Spotify, which was led by a young founder, Daniel Ek, when it was beginning to think about an IPO.
“I know no other CFO that could have taken us public and led us as steadily through an innovative direct listing and the time that has followed,” Ek said in a statement to Recode.
McCarthy had credibility from the eight years he had spent as the chief financial officer at Netflix under Reed Hastings. He took that company public and help transform the video rental and streaming company into the behemoth it is today.
But by the time he showed up full-time at Spotify in 2015, he was thinking of a different transformation: replacing the IPO with a direct listing. McCarthy pitched it as more democratic, more transparent, and better for Silicon Valley — even if it’s worse for Wall Street insiders.
I profiled McCarthy last year and discovered at the time that McCarthy was an unlikely iconoclast for an idea that threatens the big banks’ grip on startups’ public-market dreams. He was not trying to start a movement or become a hero. He was instead being “brutally logical,” making a case to Ek that this was best for his company.
“I don’t think it’s a middle finger to Wall Street because he comes from Wall Street,” Hastings told me at the time. “He’s as Wall Street as it gets.”
That direct listing was largely seen as successful, and McCarthy became an ambassador for the idea on the Silicon Valley circuit. Slack followed Spotify this summer with the second major direct listing.
Spotify’s leadership has personally pitched executives like Airbnb CEO Brian Chesky on the idea, Recode previously reported, and Airbnb is now expected to pursue a direct listing of its own early next year. Earlier this month, hundreds of tech founders, investors, and academics packed into a San Francisco ballroom for a day-long seminar on the direct listing, which began with an “Interview with the Pioneer: Barry McCarthy, CFO Spotify” as a copy of the agenda described it.
It’s worth noting that Spotify is down more than 25 percent from its opening price after its IPO in April 2018. Those who think traditional IPOs are the way to go reference the stock’s current struggles as evidence of direct listings’ shortcomings.
McCarthy’s pitch — that Spotify is another Netflix — obviously has not convinced investors. McCarthy has argued that like Netflix, a Wall Street darling, Spotify was losing money but that it could turn a profit eventually with a high-growth, direct-to-consumer business. That hasn’t yet happened.
Now that quest for profit will fall to McCarthy’s successor, Paul Vogel, who’s currently Spotify’s head of investor relations. Spotify will have to create a new, extra slot on the company’s board of directors to accommodate McCarthy’s addition, a change that will require the approval of Spotify’s shareholders in January. He’s not expected to immediately join another company.
And for all McCarthy’s new fans, he’ll never be able to escape his association with one of Silicon Valley’s most extraordinary startup implosions in recent years: Clinkle. McCarthy served as chief operating officer there as it flamed out. McCarthy tried to bring steadiness to the once-hot payments company that raised $30 million, but things didn’t go well and Clinkle became a Silicon Valley punchline.
“I’m sure he’s found Spotify much more satisfying than Clinkle,” Hastings said last year.