

Today’s $100M+ Late-Stage Rounds Very Different from IPOs - pbreit
http://abovethecrowd.com/2015/02/25/investors-beware/

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shalmanese
As a counterpoint, the two companies most commonly criticized for having a
shoddy business model; Groupon and Zynga, both managed to go public before
their valuation imploded. The IPO process did very little to burst their hype
bubble.

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jonwachob91
ZYNG is holding one hand on a life raft in a hurricane. Their bubble burst as
soon as the market realized they were over hyped on Feb 27 2012.

They are the prime example of a company that can do fine in a private market
but is getting murdered in a public market.

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georgeecollins
I suspect a problem with late stage investing is that some of it is marketing
for the investment funds. You make a late stage investment in Uber at $40+
billion valuation so that you can tell people you invested in Uber. People who
aren't paying much attention assume you are very savy, making a 10-100x
return, when you may only be making 1-2x at best.

People assume institutional investors are "smart" so they won't fall for
things like this. In some ways they are smart because they tend to be
systematic (less emotional than individuals), but in other ways they follow
the herd. They need to be involved in whatever is hot.

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ig1
I find it hard to believe that any late stage investor doesn't realize the
difference between net and gross for marketplaces.

Obviously startup founders talk about gross because it's the bigger figure,
but even early stage investors ask what cut the marketplace is going to take.

I'm not really sure who the article is aimed at, I would have though that most
non-VC late stage rounds are done by the like of investment banks or private
equity firms who have a reasonable idea of what they're doing.

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rlucas
Hmmm. A lot of late stage stuff is being done by sophisticated investors, but
ones who are sophisticated about _other asset classes_. Very often large
public equity investors are lining up at the pre ipo round thinking they can
get some alpha. Think names you associate with mutual funds and retirement
accounts.

The other ill matched category that is getting a lot of exposure at these
rounds is the private wealth groups of large ibanks. They get an allocation in
the pre ipo round and farm it out to private wealth clients, because 1. PWM
clients are all accredited investors so they can do it as a reg D exemption,
and 2. The PWM clients feel special and like they are getting insider access
from their PWM. I'm not super clear on why the companies take the PWM money,
although I suspect that in fact it is a shrewd form of pre-marketing the IPO
by getting private wealth clients to go bragging to their friends about the
hot pre ipo deal so the friends want to buy it when it goes out.

Even private equity firms who would seem well matched to the size and
structure of deal, often IMO come with mismatched expectations. The PE guys
love complicated terms, dividends, fees, promotes, and all manner of East
Coast legal wrangling which is often quite out of place in a relatively
"clean" West Coast tech deal.

Disclaimer: am a West Coast tech venture investor

