

Has 409A changed the game? - hackerbysea
http://dondodge.typepad.com/the_next_big_thing/2010/10/will-facebook-have-an-ipo-bounce-has-409a-changed-the-game.html

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ddodge
HackerbySea, I agree the Secondary Market is inefficient, and is artificially
inflating prices. Individuals are bidding up prices without any financial
information or real competitive market.

However, I think the public markets will be more efficient, and have more
complete financial information. My guess is that the public markets will not
value Facebook, or other high flying private companies, at a much higher
valuation. In fact, I think the public markets could value these companies at
substantially less.

In the end that is what makes a market, buyers and sellers, all with different
opinions. It is impossible to say who is right at this time.

My point is that private valuations have been driven up far higher than ever
before for three basic reasons; 1.) Lack of IPO market has driven the creation
of new markets 2.) 409A has required companies to value their stock at much
higher valuations than ever before. 3.) Second Market allows individuals to
buy private stock, and bid up prices, without complete financial information.

Time will tell how efficient or accurate these alternative markets really are.
My guess is the gap between private valuation and IPO public valuation has
narrowed considerably, and we will not see the IPO price bounce we saw in the
past. Just a guess. Time will tell.

Don Dodge

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hackerbysea
I think this missed one point: Secondary market is not as efficient as real
public market after IPO:

Both supply and demand would be much higher on real public market, and demand
would be much bigger than supply. Meaning: ipo price would be much higher than
current secondary market price.

