
Was LinkedIn Scammed? - mmastrac
http://www.nytimes.com/2011/05/21/opinion/21nocera.html?_r=1&amp;hp
======
trotsky
The underwriters also have a responsibility to all involved not to over price
the ipo to take advantage of transient demand. If they do, and the stock ends
up under water within a few days to months they run a serious risk of pissing
off both their investing clients and the newly public company. Opening down or
trading below what the stock priced at in the short term has a strong stigma
attached to it and can make retail and institutional investors think there is
something systemically wrong with the company regardless of the fundamentals.

There was an editorial in the WSJ on friday that strongly suggested the price
action in LNKD has to do with the current easy credit environment driving
money into riskier assets. I agree this seems likely. Certainly it seems
difficult to justify the valuation on any traditional metric. If when pricing
the ipo Morgan also felt that any frothy demand was based more on the easing
environment than real interest in LNKD as a company, perhaps they were right
to hold the pricing a bit more conservative than the market was suggesting.

After all, they already had increased it by almost 33%, and the current QE
program is scheduled to shut down in June. Many smart people appear to be
betting on interest rates climbing after the program ends, that may take
enough money out of the market to cause someone like LNKD to correct.

Another thing to keep in mind is that LNKD offered a relatively small amount
of stock as compared to many offerings. This kept supply low and could have
contributed to the large pop, but also means that they probably have plenty
available for a potential secondary offering, which could allow them to profit
from these very price moves down the line,

~~~
neilc
_Opening down or trading below what the stock priced at in the short term has
a strong stigma attached to it and can make retail and institutional investors
think there is something systemically wrong with the company regardless of the
fundamentals._

I understand there's a stigma, but why does the stigma exist? Let's just
assume that the investment bank's only goal is to accurately predict the
demand for a new IPO, and to set the offer price accordingly; why is
overpredicting demand stigmatized whereas underpredicting is not?

~~~
arethuza
"Let's just assume that the investment bank's only goal is to accurately
predict the demand for a new IPO"

I'd say that their main goal is to make sure that the shares are all sold at a
price that everyone is happy with - the management team of the company going
public is _heavily_ involved in all the steps on an IPO.

Like taking VC money, nobody _makes_ you go public and both are things to do
with your eyes wide open.

~~~
pemulis
Well, there's the SEC.

~~~
veyron
technically speaking the SEC does not force you to go public.

The problem most people refer to: if you have over 500 shareholders of record,
you have to make a lengthy filing which is almost as onerous as going public.
Hence, since the incremental effort isn't that much, most companies in that
position go public. There's technically no compulsion to do so.

------
SeanDav
Having worked in the industry for a long time I have no doubt that Invest
Banking Firms are greedy fucking bastards.

However, in this situation it is more a case of damned if they did and damned
if they didn't.

Before the IPO there was a fair amount of nervousness about a big launch of
yet another dot com. It is easy to look at this with the benefit of hindsight
and say - they should have known the share price would more than double but I
doubt they purposely got it that wrong.

------
msy
Am I the only one who feels that if I'd put in the blood, sweat and tears to
build a company to the point where it could be IPO'd I'd be more likely to
gouge my eye out with a rusty spoon that open it to the sharks, sociopaths,
speculators and manipulators of wall st and the open market?

~~~
vtail
You're probably not along. At the same time, I believe significant number of
people (myself included) will respectfully deem this view too gloomy and
pessimistic. One could probably use the same logic arguing about the first (or
second, ...) round of VC financing.

In each case, you are relaxing some control of your company in exchange for
something else valuable: other people's money. Whether such exchange is fair
or not depends on specific circumstances; each side can always ask for more
(money, control) to make the exchange fair.

I don't know of any company of any significant size (e.g. with >$100M of
annual revenue) that hasn't made such an exchange at some point in its
history.

~~~
msy
There's a big difference between a VC round and the open market. The markets
are often not driven by anything even related to the companies whose
valuations fluctuate wildly by billions of dollars in under a second. They
don't open to you (to same degree) to hostile takeovers, pump-dump schemes and
naked short attacks. They force companies to kowtow to the opinionated whims
of unaccountable analysts and focus on short term profits over long term
strategy.

~~~
mdda
I'm sorry, but I don't see why people are so hostile to trading in the open
market.

The public stock market is a real-time debate about valuation in the open. The
VCs do it behind closed doors. Being critical of the markets for being
divorced from reality is fine, but surely having a public stock price is
better than having it all hidden from view?

If you're not a fan of more openness, maybe you are hoping to 'pick off' a VC
who over-values your company, away from a public analysis of its actual worth?

As for having a public listing forcing a company to do anything - it's not
true at all (except for publishing audited accounts). The company is free to
ignore the gyrations of the market, and keep its plans secret too.

------
alex1
One of the reasons LinkedIn's share price jumped so high from its IPO price of
$45 was because of a very low float. There are too few LinkedIn shares trading
on the public market. It is not that easy to get your hands on LinkedIn shares
right now, even if you are willing to pay market price. This artificially
raises the stock price.

I believe 7 million shares were floated out of ~94 million outstanding shares.
If more shares are floated, the price per share should go down (not
considering other factors) as there will be a larger supply of shares in the
public market. The assessment that the investment banks that the IPO should be
priced at $45 sounds more reasonable had all 94 million shares been floated
(speaking hypothetically; this never actually happens).

For this reason, valuing LinkedIn by multiplying 94 million (total outstanding
shares) by the current stock price on the NYSE (as most news articles have
been doing) is probably not a very accurate measure.

~~~
guelo
But that would mean that the investors didn't know how to do math. Everybody
that buys knows what percentage of the company they're supposedly are
overpaying for.

------
DavidSJ
_The fact that the stock more than doubled on its first day of trading —
something the investment bankers, with their fingers on the pulse of the
market, absolutely must have known would happen..._

No, this is an absurd claim. Investment bankers are not clairvoyant.

~~~
ramanujan
Right. This is reminiscent of the famous line about what your accountant is
supposed to say when someone asks him about profit.

    
    
      Profit? Who's askin'?
    
      - If it's a customer, you're making a little bit of profit.
      - If it's an investor, you're making a LOT of profit.
      - And if it's the government, you're making no profit at all.
    

Joe Nocera wants everyone to make just a little bit of profit. If they make
too much, he's calling for a Congressional investigation. And if they make too
little...he's calling for a bailout:

    
    
      http://www.nytimes.com/2009/01/24/business/24nocera.html
      
      Most important, the government has made clear it will not  
      allow a major bank to default, to avoid the replay of the 
      Lehman catastrophe.
    

Nocera is one of the guilty parties in the prestige press who propounded the
"too big to fail" mythology. Now sovereign defaults are on the horizon, in
part because we didn't let banks that made bad bets simply go into bankruptcy.
His observations about banks should therefore be taken with a grain of salt.

~~~
eftpotrm
Too big to fail is _ _not_ _ a fallacy. The knock-ons from the failures of
Lehman and Bear Stearns were very visible. In Europe, the knock-ons from the
failure of Kaupthing and Landsbanki were too, and they only ended up affecting
insitutional investors as retail depositors got government protection.

AIG failing would have caused an investor panic across banking as a whole due
to their position as the leading insurer of investment risk.

In the UK, Lloyds TSB and RBS (two of the 'big four' UK banks) both very
nearly collapsed; the smaller Northern Rock bank did collapse and had to
become 100% government owned. The alternative in each case was depositors
having their assets frozen for a long period with only the promise of pennies
on the pound a long time later, with a knock-on loss of confidence for the
sector, combined with a large compensation bill for the taxpayers. Would you
_really_ like to see what that happens when 20% of the banking market suddenly
freezes?

~~~
ramanujan
Yes. Because the alternative -- which we are currently seeing unfold -- is a
wave of sovereign default, starting with the PIIGS and ultimately taking out
the USD as the world's reserve currency.

...I should add that Northern Rock did not have to be nationalized, nor should
taxpayers be obliged to pay any kind of compensation bill. Bankruptcies can
and must happen to clean out the dead wood.

~~~
eftpotrm
UK law provides taxpayer backed guarantees to a fixed balance per saver per
bank; if NR had been allowed to collapse the UK taxpayer would've been on the
hook for that amount.

And I agree that bankrupticies must be possible and are a good thing for
businesses as a whole; Too Big To Fail explicitly works against this. NR was
big enough regioinally that it'd have caused major economic damage to that
(already fragile) region had it been allowed to go down.

------
joelmichael
Prior to the IPO, everyone was saying $45 was absurdly high. Now it's absurdly
low.

~~~
tpatke
This is a good point. Of course - for a banker it is not an opinion it is a
full time job and at 7% they are very well compensated for it.

~~~
joelmichael
Goldman evidently thought it was overvalued, too. They sold all of their stock
at the IPO price. So if their goal was to "scam" LinkedIn, they didn't do a
very good job of it. [http://finance.fortune.cnn.com/2011/05/19/goldman-
leaves-lin...](http://finance.fortune.cnn.com/2011/05/19/goldman-leaves-
linkedin-party-early/)

------
OllieJones
Who do the company's financial executives serve during an IPO, when the
identity of the investors is changing fast?

Let's not forget that the point of an IPO is to (a) provide an exit for the
startup investors. (b) raise funds for the company's future operations (c)
make the company's financial executives and founders rich.

Who loses when the offering price is lowballed? Everybody who sold shares into
the offering. That's the first two of my list. Usually the insiders have a
six-month lockup; usually they can't sell their own shares until six months
after the IPO. So, if the shares hold their price the execs will do well.

There's a big PR penalty if the stock drops below the opening price. That will
turn into a money penalty on the execs in six months unless the company can
overcome it.

So, the smart bet for self-interested execs is to lowball the offering price.
As long as the startup investors don't call foul, the only loser is the
company itself.

If I were an investor, I'd insist on the execs giving me (selling me cheap)
options to buy half their shares at the opening price, as an incentive for
them to price the offering right.

------
pbreit
I like Henry (Joe...not so much), but they are being idiots. Pricing an IPO is
not quite that easy. And a 100% pop is not the end of the world for the
company. In fact it is pretty neat.

Henry's analogy is asinine. Better is the owner of a 10 unit building renting
to a tenant for $1000 who turns around and rents for $2000. The owner, without
doing anything, has just increased the value of his building by 90%.

------
awarzzkktsyfj
Google's Dutch auction IPO pricing looks even more appealing after seeing
this. Too bad it took a recession for them to get the bargaining power to
demand a Dutch auction.

~~~
hristov
I do not think it is a matter of LinkedIn lacking bargaining power. It is a
well known company and it is the first social company to go IPO, so every bank
will be eager to underwrite them so that they can say they are the experts of
social. They could have had a dutch auction if they really wanted one.

I think the reason they did not go with a Dutch auction is they lack the
confidence of Larry and Sergey. What if it fails? What if the bankers get
pissed off and sabotage it by not working hard enough to sell the issue.

Having the price jump by 100% may be leaving money on the table but it is not
a disaster. Having the IPO fail would be a disaster, and the management of
LinkedIn would be personally blamed for it.

~~~
iwwr
_What if the bankers get pissed off and sabotage it by not working hard enough
to sell the issue._

Have things become so bad that companies must ingratiate themselves with
40-50% tributes to the banks?

~~~
michaelochurch
_Have things become so bad that companies must ingratiate themselves with
40-50% tributes to the banks?_

I hate investment wankers with a passion and would love to see the people
involved in IPO spinning get the Paris 1793 treatment. But the "40-50%
tribute" claim is not correct. LinkedIn only offered about 7% of its stock, so
it was only a 3-4% tribute.

Knowing how scummy banks are surrounding IPOs, this was a very intelligent
strategy. Now the stock can trade to a fair level and then they can do a
secondary offering at a real price.

~~~
hristov
I think the grandparent was referring to the theory that bankers may
intentionally underprice the issue so that they could extract some of the
benefit from the underpricing.

So for example, in the case of LinkedIn, the theory is that the bankers knew
that the shares could go for 100% higher price than the IPO price and sold
those shares to their buddies at a much lower price with the understanding
that their buddies would pay them back a percentage of the money they make
flipping the shares by doing various other business with the banks.

Of course none of this is proven, but it is a theory many serious people have.

------
zach
Seems like a great topic for a NYTimes business-section infographic:

Which underwriters price IPOs most accurately and which ones leave huge
amounts of their clients' money on the table?

------
adamtmca
Not a scam. Inflammatory banks are evil stuff with little to no support.

In hindsight it's easy to say they should have known it would get to this
price but in the weeks leading up to the IPO it would have been pretty
difficult to justify pricing at 80. The current price _is_ difficult to
justify and may not hold beyond this initial frothy period.

Add to that the greater downside of underpricing and I just don't think the
author is really making much sense.

------
kevinpet
I was initially on the "scammed or at least poorly served" side, but then
someone with more experience in these things than me pointed out that the
shares the traded hands in the IPO were a smaller fraction of the company. If
you sell 10% of the company at at 50% discount, you've actually only given
away 5% of the total value of the company, and you've gained a huge marketing
win.

Also, for reasons that seem irrational to me, I'm told institutional investors
consider it a strong indicator things are going downhill if a stock ever
trades below it's offering price.

------
bhudman
It is also possible that no matter how the opening price was, people were
going to gobble it up anyways.

Like others pointed out, the price slowly grew from $25, $35 and finally $45.
I had placed a limit buy order for $47, and it opened at $85.

If there are any finance folks here, I have a question - who set the $85
price? Was it the underwriters? It could not have been the market because the
stock started trading at $85. Also, I could not get any stock data from any of
the sites (NYSE, yahoo, google, ameritrade etc) untill past 10:15am EST or so.
Is this delay normal for IPOs?

~~~
ScottBurson
I think they way they set the price is to take the number of shares available,
subtract out the number for which there are market orders (i.e. orders to buy
at the market price, i.e. non-limit orders), then take the remaining shares
and the open limit orders, and find the highest price that gets all the shares
sold.

So if it opened at $85, that means there were limit orders placed at that
level and higher.

I don't know why there was a delay in the price reporting.

------
alanthonyc
Break out the Adam Smith?

 _"People of the same trade seldom meet together, even for merriment and
diversion, but the conversation ends in a conspiracy against the public"_

------
perlgeek
I don't know very much about the stock market, so forgive my stupid
question... but couldn't you circumvent this problem by not selling all the
stock at once, but rather sell it in packets of a few percents at a time?

Then you'd get a feel for an appropriate price on the first few trading days,
so you can't get scammed except for a few percent of the stock.

~~~
orijing
Companies do do that. The first sale is called the primary offering, and ones
that come after are called secondaries (or follow-on).

I'm not sure if LinkedIn will do that, but it's common among small companies
that are capital intensive.

Usually the goal is not to capture the fluctuation in short-term price, but
rather the long-term appreciation from demonstration of potential. For
example, if Tesla sold everything when it IPOed, it would be unlikely to get a
good price for it, not to mention it doesn't need all that cash now so it's
somewhat wasteful. But if it sold half then and sold half in early 2012 or so,
it will be able to (hopefully) get a better deal in the second chunk.

Back to the issue of short term mispricing, companies like Google hold open
Dutch auctions so the actual price is very close to the fair market value. I
don't know why LinkedIn didn't do that but I suspect it's because it wants to
keep good relations with bankers.

I hope that answered your question.

~~~
perlgeek
> I hope that answered your question.

It did, thank you.

------
hugh3
If I recall correctly, didn't the IPO of Google use some unconventional
structure, like a reverse auction or something? Anyone remember the details?

Anyone know why this isn't done more often?

------
ansy
This is just my theory, but saying LinkedIn was scammed because the IPO was
underpriced is like saying Sony or Nintendo were screwed by shortages on the
PS2 or Wii. LinkedIn sold a tiny fraction of its shares, far less than the
market would bear. The IPO was oversubscribed and artificially doubled in
price.

Instead of selling a bunch of shares at the "fair price" up front, LinkedIn
created the perception that LinkedIn is undervalued, desired, and worth more
than it really is worth. All it had to do was sacrifice a tiny portion of the
shares in the IPO and it's the new hot money maker.

Now the company and its investors have created an environment where they can
unwind more of its shares at a hefty premium, more than making up for the IPO
"loss."

Maybe LinkedIn didn't plan this out so perfectly. But it probably saw this as
one possible result of the IPO strategy it chose.

~~~
AJ007
I saw this same story a while back right after the Zipcar IPO. Seriously I
expect better from the NYTimes. Especially considering that everywhere else is
reporting this as a bubble.

Which is it, did LinkedIn scam investors or have investors scammed LinkedIn?

------
jonah
The story on MSFT's IPO was fraught with uncertainty and concern over who-
gets-what in the pricing scheme:

[http://features.blogs.fortune.cnn.com/2011/03/13/inside-
the-...](http://features.blogs.fortune.cnn.com/2011/03/13/inside-the-deal-
that-made-bill-gates-350000000/)

------
erikpukinskis
Can anyone explain why a company has to dump all their shares at once? It
seems like it would make sense to just offer, say 1% of the shares every five
minutes at whatever the previously issued shares are trading at. I'm sure
there's a good reason, I'm just curious.

------
fleitz
These kinds of articles are seriously insulting to the leadership of the
companies involved in the IPO. I seriously doubt that the board of LinkedIn
would let themselves be scammed by a bank. If the article is true and this
scam has been going on for years and LinkedIn allowed it to happen to their
company then that would send me a signal not to invest. However, I think they
knew the risks and choose a lower IPO to ensure upward price movement on the
first day.

There are many ways to IPO (auction, etc) and you have to keep in mind that a
big IPO pop makes everyone feel good about the stock. Yes, perhaps LinkedIn
possibly _could_ have made an extra $352 million, but if that strategy
resulted a $70 IPO with no pop then they would have lost $1 billion in market
cap. Pricing and seeing an upward trend have a big impact on the perception of
value. Stocks are not priced according to some logical rational algorithm,
it's about perception of value and big returns and amazing articles about how
it doubled in value on it's first day help fuel those perceptions.

------
nikcub
The headline can be summaries as 'no' since his only counter-argument seems to
be 'the banks should have known better'

Pricing for a listing is a very complicated process. The underwriters, along
with the company executives, go out on a very long roadshow and book orders
well before the listing date. It is through these orders, not some magic made
up numbers, that the final price is determined from.

In the case of LinkedIn, they changed their list price no less than 4 times
between the time they filed their S1 with the SEC and the time they finally
listed. Initially it was $31, and the last hike to $45 only happen the night
before the listing.

LinkedIn management are professionals who understand their business and
understand the process, they have a choice of underwriters to work with and a
choice of investors to take orders from. This isn't a single bank taking them
for a ride - to suggest that is offensive to those who run LinkedIn

Where the real problem lies, and a problem that was not raised in this
criticism, is in how orders are taken. This is what Google attempted to solve
with their Dutch Auction system. The claim is that the banking community is so
tight-knit that they collude with each other to keep the book price down. So
what Google did was to hold a silent auction on bids and allotments, only to
find when the process was over that most banks essentially bid around the same
mark anyway.

Paying out 6.5% of your company to go public does suck - but it is the cost of
creating a viable and flowing public market for your stock. You can't just
sell that part of the company to 4 or 5 banks and then ask them politely to
pass it on - you may as well just raise another private round in that case.
The point of the IPO is to diversity ownership as broadly as possibly and to
engage firms that would be willing to take on and trade the stock so that a
market is created.

None of the alternate mechanisms work, and you need to be a very large and hot
company to even challenge the status quo in the way Google did (and in a way
LinkedIn did as well - with their two classes of stock). Note that the
underwriters are taking a risk since they end up holding a lot of stock, and
in the event of the list price dropping there would be a lot of questions
asked about the prospectus and roadshow and potential lawsuits. Also on the
other hand, there are not a lot of IPO's that take place, so the underwriters
need to make the most of the business they do get - they are the ones with the
connections to the large funds that purchase stock, so acting as a risk-
bearing agent in that capacity does deserve compensation.

LinkedIn didn't help their cause by listing so few shares. When there is
scarcity in the market and so much demand, then there is only one way that the
list price would go - and that is up. If they listed twice the number of
shares to meet demand then there definitely would not have been so much
volatility on the opening day (a lot of which was caused by 'market' orders -
which means 'buy at any price').

tl;dr: creating a free flowing and liquid public market for your stock is a
very complicated, highly regulated and risky process and nobody has figured
out a better way to do it

~~~
randallsquared
_The claim is that the banking community is so tight-knit that they collude
with each other to keep the book price down. So what Google did was to hold a
silent auction on bids and allotments, only to find when the process was over
that most banks essentially bid around the same mark anyway._

Your tone seems dismissive of the claim, but finding out that a bunch of
people all bid about the same amount when they only way they could find out
what each other were bidding is collusion doesn't exactly count as evidence
_against_ collusion, does it? It's not great evidence _for_ , but at least if
bids were all over the place it would be evidence that many banks don't have
an informal cartel or whatever.

~~~
nikcub
> Your tone seems dismissive of the claim

I didn't mean it to come across that way, because I totally believe that they
do collude. If they didn't then that entire part of the industry would become
hyper competitive, unstable and probably a zero-margin (or even loss-leading)
business.

These conglomerates in investment banking could handle the business and not
make anything on it, they just don't like that. There also _is_ a lot of work
involved, so the fees are somewhat justified (see the Microsoft IPO article
for an idea of how much work goes into it) - this wasn't helped by Sarbanes
Oxley which added a whole new layer of pain-in-the-ass to the process, that
only a select few hold the cure for.

There is also an element of this only being a problem when there is a
significant first-day rise. You don't hear anybody complaining about it when
stocks tank or run level on the first day (if you look at all the tech IPO's
from past few years - opentable, rackspace, netflix, renren, etc. most have
not done too well in short term).

What would improve the situation would be the companies being able to raise
more of the money overseas and thus introducing more competition into the
process. Atm overseas funds can buy in after a listing, but for some reason a
lot of the pre-listing sales tend to take place in the USA and amongst the
usual suspects.

~~~
RickHull
> If they didn't then that entire part of the industry would become hyper
> competitive, unstable and probably a zero-margin (or even loss-leading)
> business.

Well, that's what all colluders and monopolists say. I don't see any problem
with this outcome. The inefficient get out of the business, and margins settle
back to what the market demands.

------
brisance
Why couldn't the shares have been offered in 2 classes: one with voting rights
and one without. Offer more of those without. Lots of companies do this e.g.
Berkshire Hathaway, Google etc. That would solve the "mispricing" problem.

~~~
OllieJones
Many institutional investors won't touch two-class shares. It's an inherently
rigged model. But at least you know it's rigged, and the rigging rules are
transparent.

------
horofox
It wasn't a scam, just take the fact that "[LinkedIn] became the first major
American social media company to go public" and you should notice that it
happened due to (1) managing an IPO is HARD (2) web social media is young.

------
dpatru
Why can't the new shares sell in a uniform price auction the way treasuries
are sold? Per wikipedia (article on auctions):

 _Debt auctions, in which governments sell debt instruments, such as bonds, to
investors. The auction is usually sealed and the uniform price paid by the
investors is typically the best non-winning bid._

The underwriting bank would just take bids for a set period of time, and then
the winning bidders would pay the highest losing bid. This would help ensure
no first-day price spike since any buyer who wanted shares could have bid his
top price for them in the auction.

------
johnl
I am going to get slammed for this but I really doubt if they care. 7.84M
shares was the IPO makes a total of 94.5M shares outstanding. That's less than
10% outstanding if I am reading the press correctly. The other 90%+
shareholders will want the IPO to pop just so the market impression of the
company is positive so they can sell their shares at a good price when their
holding period ends. Like any investment, I would look at the current position
of the company and it's long term prospects before investing.

------
skybrian
The real question is why more companies don't follow Google's lead and use an
auction for their IPO. That lets anyone buy if they want to and lets the
market decide the price.

~~~
ScottBurson
Agreed. Maybe it just takes a certain amount of chutzpah to buck the system
like that. Or, maybe some of the VCs are in bed with the investment bankers.

It surprises me, though, considering that Google has blazed the trail, that
others wouldn't be eager to follow, if only to encourage people to think of
them as "the next Google".

------
rdl
I miss the Google/WR Hambrecht style auction priced IPOs. Hopefully, after a
couple more companies IPO, the big fish (Facebook, maybe Twitter) will IPO
using an auction to allocate and price.

------
rob08
It should also be considered that the underwriters gets paid on the amount
raised (7% according to the article), so the underwriters also "lost" money
from that perspective.

------
dreamdu5t
One thing is clear: Speculation is playing an enormous role in LinkedIn's
valuation and capitalization.

~~~
mdda
Aside from all the investment banker bashing, is the valuation of Facebook and
Twitter being more rationally set away from the public by the VCs?

------
robdd1
can someone explain why the middle man is needed? Why can't a company apply
for a listing on the exchange. Then disclose how many shares they will be
selling , then start accepting bids on the exchange?

Obviously you would need regulations around this but why is there a middle man
at all?

~~~
dstein
As usual, the middleman is not really needed. Or they wouldn't be if a new
stock exchange was designed to make this process easier. I guess this is
essentially what Second Market is trying to circumvent. If the shares of
companies can be traded even in small amounts before going public the
companies have a better idea what they are worth on the open market.

~~~
mdda
No! A thousand times no! Second Market's bid/offer spreads are enormous
compared to the public stock market. Second Market is a web facade on a
straight-forward over-the-counter trading operation.

While the idea of doing a 'soft launch' IPO by building up from a toe-in-the-
water market makes some sense, the reason that Second Market is being looked
at hard by the SEC is because it's doing something that should be regulated
far more than it is (because they're using accredited investor exemptions to
get around the various disclosure/oversight rules).

------
phatbyte
This is a red flag for Facebook.

