
My experiences through GrubHub's IPO from start to finish - dmarinoc
http://mevans314.com/2015/02/09/whats-an-ipo-my-experiences-of-grubhubs-initial-offering/
======
ilamont
_If everything goes perfectly and the company has created a lot of buzz and
momentum, there is interest to buy at a price above what has been printed on
the S-1. As the pricing approaches, the company responds to this interest by
increasing the price. Then the investors respond to the new price. This cycle
repeats two to three times as the date approaches._

So, the price was not based on fundamentals of the business, but rather buzz,
hype, and tactics like restricting the number of shares. The common stock
price has since risen but it's now running a P/E ratio of 135 (1).

Who is getting the short end of the stick when reality kicks in? Mom and pop
investors? Mutual funds and pensions?

Also, what's with the "bootstrap" banner at the top of the page? Grubhub took
$84 million in funding (2).

1\. [http://research.investors.com/quotes/nyse-grubhub-inc-
grub.h...](http://research.investors.com/quotes/nyse-grubhub-inc-grub.htm)

2\.
[https://www.crunchbase.com/organization/grubhub](https://www.crunchbase.com/organization/grubhub)

~~~
adventured
Institutions and mutual funds hold about 50% of the stock. Then with
employees, any remaining shares held by venture backers, and traditional
insiders it's likely the extreme majority of damage at this point would be to
non-Mom & Pop investors.

------
psuter
Very interesting and educational read. Even if you know a little bit about how
IPOs work, reading through the complete timeline helps understand the roles
and the steps involved.

One question that came after reading:

    
    
        The underwriter won’t move forward unless they get a very
        high percentage (99-100%) of employees/shareholders to sign
        a lock-up.
    

What are the incentives for employees to sign such an agreement? It sounds
like the only point in the process where an (organized) group of employees
could have _some_ leverage?

~~~
chollida1
I'll start by saying I'm not surprised employees get the shaft as I've spent
countless hours analyzing the IPO process looking for trading advantages and I
still don't fully understand it:(

Quite often the choice of a lockup is out of the companies hands, many states
require it. The SEC however doesn't require a lock up, they just recommend it.

[http://www.sec.gov/answers/lockup.htm](http://www.sec.gov/answers/lockup.htm)

[http://www.sec.gov/answers/bluesky.htm](http://www.sec.gov/answers/bluesky.htm)

I'm guessing most companies include language about this when you join and get
your first option grant. They usually don't go around to each employee and get
them to sign something before an IPO as their initial grant language often
covers this. if they do please let me know:), Actually I take that back, that
would probably be insider knowledge, please don't tell me:)

Rule 7-G
[http://www.law.cornell.edu/cfr/text/17/230.701](http://www.law.cornell.edu/cfr/text/17/230.701)
covers this if you feel like reading some really dry material:)

It is possible for the company to file an S-8 registration form to allow some
shares to be sold but many companies don't file this form.

Here is a good paper on analyzing the trading of locked up shares.

[http://pages.stern.nyu.edu/~eofek/PhD/papers/FH_The_JF.pdf](http://pages.stern.nyu.edu/~eofek/PhD/papers/FH_The_JF.pdf)

~~~
melvinmt
Is it insider knowledge if the company is not public yet?

------
jackgavigan
It's a pity he doesn't talk about how the stock was priced. GrubHub closed up
31% the day it IPO'd, which means that they left $59.2m on the table.

~~~
yellowstuff
I don't know about GrubHub in particular, but it is normal to see first day
IPO returns of 20% or more. The main reason is monopsony- there are a limited
number of institutions that can make significant investments in new IPOs, and
they demand a discounted price. Another factor is that there are just a few
bulge bracket investment banks to facilitate large IPOs. Their loyalties are
more with the repeat players that buy IPOs than the smaller players that sell
them.

Note that the founders who sell into an IPO tend to hold onto a lot more stock
than they sell, so they're not solely concerned with getting the best price at
the IPO. Do you think when FB cratered after the IPO Mark Zuckerberg was
smiling because he got a great price for the shares he sold?

Even Google wasn't smart or powerful enough to beat the system. They tried to
do an auction instead of a regular IPO, but at the last minute large investors
threatened to pull out, so Google IPOed at $85 and popped 17%.

~~~
saileshr
Would like to understand this better: If you have such a well known brand name
like Google or Facebook, why not manage a direct sale to the public via
auction and cut out these institutional investors? Even if these institutions
threaten to pull out, isnt there enough capital in the markets to absorb a $1B
IPO?

~~~
jackgavigan
Google originally planned to price their IPO using a kind of bastardized
hybrid Dutch auction process but their timing was unlucky - the market dropped
significantly between the time they announced their IPO to the day they
actually floated, with Internet stocks performing worst of all (the NASDAQ
Composite dropped 8%; Amazon dropped 15%). They ultimately bowed to pressure
from the lead underwriters (I was working for Morgan Stanley at the time, so I
remember it well) and agreed to reduce the price to a point that would
guarantee a first-day pop[1]. It's generally accepted that it was
underpriced[2].

Facebook actually did okay. The underwriters had to step in to support the
stock price after the IPO, which actually implies that it was _over_ -priced.
Somewhat embarrassing for the underwriters but great for Facebook!

There were a spate of companies that did actually use the Dutch auction
process around the Dot-com boom (e.g. Overstock) but it wasn't popular with
institutional investors[3].

If you're interested in the topic, I'd recommend _Information Markets_ by
William J. Wilhelm Jr. and Joseph D. Dowling (Harvard Business School Press,
2001).

1: [http://news.cnet.com/Google-slashes-IPO-
price/2100-1024_3-53...](http://news.cnet.com/Google-slashes-IPO-
price/2100-1024_3-5313952.html)

2:
[http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ayLEX...](http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ayLEXNrsx8PU)

3:
[http://www.wsj.com/articles/SB1028063270104806040](http://www.wsj.com/articles/SB1028063270104806040)

------
ShellfishMeme
I'd be interested in experiences with what IPO means for internal processes,
especially in the software engineering parts of the company.

Any more supervision? Did the way development and deployments work change? I
can imagine when you're publicly traded the higher ups might suddenly care
much more about being on the safe side of things and try to enforce stricter
rules.

~~~
patja
Sarbanes-Oxley compliance alone will have significant impacts on development
and operations processes.

------
nemo44x
If your company goes public and you have valuable equity but face a lockup of
6 months you can still "lock in" some price...if your company gets publicly
traded options that is.

Sell calls at the price you want to sell for the month that the lockup
expires. If your shares get called away you got the price you wanted and some
premium. However, you miss out on a huge gain if it goes far beyond your call
level. Also, if the stock tanks in that time you keep your now less valuable
shares but you got some premium.

So, after selling calls you can take that money you made from the premium and
buy puts with it at around the same price. You've created a spread here and
have locked in a selling price and gave yourself some downside insurance - all
for very little cost to you over all since the covered call premium paid for
most, if not all of your puts. Your only risk now is that the stock goes
through the roof and you miss out on some upside - but that makes sense as
you've eliminated risk for very little out of pocket cost. So maybe you do
this on 1/2 or 2/3 of your position or whatever you're comfortable with.

Of course the difficulty is if you have a ton of stock and the option market
for your company isn't very large and therefore illiquid.

~~~
m_evans
This is typically not the case. The lock-up specifically prohibits trading
options, pledging shares as collateral for debt, selling shares, or gifting
shares to charities. It also usually a catch all for benefiting directly or
indirectly (through a trust or foundation)

Source: I founded GrubHub and wrote the article referenced here.

~~~
nemo44x
Thanks for information - I wasn't aware this applied to non-insiders or ex-
employees too for derivatives that expire after the lock-up.

I guess no amount of financial engineering can unscrew the little guy. :)

BTW, love your company and use it often, thank you!

~~~
timr
This was my experience, as well: my lock-up contract explicitly forbade
trading in any company security, derivative, etc.

I don't know how they'd enforce this, however. Seems like you'd have to have a
big mouth, and they'd have to be willing to fire you for it.

~~~
prostoalex
They don't enforce it pre-emptively, but can hit you with a case many years
after if the amounts involved are worthwhile of investigator's attention.

~~~
timr
Unless the lockup restriction is part of your state's laws (it isn't in
California, AFAIK), it's not a matter for an "investigator" \-- it's a private
contract between yourself and your company.

It does vary state by state, though, so I suppose it's possible that some
states have laws that prevent you from trading in derivatives during a lockup
period.

------
knivets
Read at first as GitHub's IPO.

~~~
mmonihan
Same, I was like BUY!

~~~
electrum
Same here. "GitHub had an IPO???"

