The flopping of the IPOs: Tech's biggest investors came to San Francisco for a major startup conference, and one topic stole the show

• Startups, investors and journalists convened in San Francisco this week for the 3-day TechCrunch Disrupt conference, a bellwether of the trends dominating Silicon Valley's boardrooms and venture capital firms
• This year, many investors discussed the disappointing returns from some of the industry's most anticipated tech IPOs, and blamed big banks for overhyping private companies on public markets.
• Several investors pointed to direct listings as a viable option for startups and investors alike following generally positive results from Spotify and Slack.
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The Disrupt conference in San Francisco, organized by Tech Crunch, is a longstanding showcase for cutting-edge startups and products. But the star of this year's show was not a buzzy new app for swapping selfies or a new cloud platform; it was an arcane process for companies to sell their stock to the public.

The so-called direct listing was inescapable during the three-day conference, debated on stage by venture capital investors and founders, and discussed in the halls by the software developers, journalists and other guests.

With the conference taking place just days after WeWork shelved its highly-anticipated initial public offering, the focus on going public - a celebrated milestone in the startup world - was not entirely surprising. And in the wake of a string of disappointing IPOs this year, from Uber and Lyft to Peloton, there was a palpable need among the guests to commiserate about the state of affairs, prognosticate about the future and find someone, or something, to blame.

Some VCs at the event were quick to point the finger at financial institutions like JPMorgan and Goldman Sachs - these banks overhyped companies like Uber and Lyft, running up private valuations so much ahead of the IPOs that there was nowhere for them to go on the public markets but down.

For many of the VC investors on hand, the remedy was simple: a direct listing, that sidesteps the traditional, banker-controlled IPO process.

"As someone who invests in companies that are upending the status quo, there is something innately appealing about a financial vehicle, an instrument, that is upending how things have been done for a long time," said Spark Capital's Megan Quinn, during a panel.

"Rather than having underwriters, lineup investors set the price themselves, you just let the market have at it and come what may," Quinn said.

In all, direct listings were discussed in at least three major panels throughout the first two days of the Disrupt conference.

What is a direct listing, anyway?

In a direct listing, a company simply lists its shares on a public exchange and the stock begins trading. Unlike in an IPO, there is no bank underwriting the offering, setting a price and selling it to institutional shareholders. The startup does not actually raise any money in a direct listing, but its employees and early investors can sell their shares right away.

While not an option for every startup, GV's David Krane explained that a direct listing is an appealing option for startups and investors hoping to bypass the traditional IPO process with those big banks

It doesn't hurt to be able to exercise your options on the first day, either, he added.

Several investors told Business Insider that Slack's direct listing in June helped prove the strategy a reliable option for a wider range of private companies than previously thought.

Still, in a panel with Slack cofounder Cal Henderson and Spark Capital's Quinn, the pair reiterated that a direct listing is best for a startup that doesn't need an influx of cash that normally comes with a traditional IPO, and so would not work for a company like WeWork, which is facing a cash crunch.

The discussions at the Disrupt conference are the latest signs of a shifting landscape in Silicon Valley, after years of skyrocketing private market valuations that produced hundreds of "unicorns" - the glittering startups valued at $1 billion or more in the private markets.

On Tuesday, a dozen VC firms organized a private summit with guest speakers such as the author Michael Lewis to discuss direct listings and other IPO alternatives.

For the entrepreneurs and techies who convened at the Disrupt conference, the fixation on the direct listing underscored the eternal optimism that runs through Silicon Valley. The biggest IPOs are flopping, but there's an explanation and a solution.

And as long as VCs are still writing checks, for many startups at the event, there was no reason to panic.