
How the decimation of the IPO market has hurt the economy and worse - hbhakhra
http://blogmaverick.com/2016/02/04/the-pre-cognitive-anti-trust-violationhow-the-decimation-of-the-ipo-market-has-hurt-the-economy-and-worse/
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hbhakhra
Mark Cuban is an interesting character. I originally viewed him as the goofy
owner of the Dallas Mavericks but now that I've seen some of his talks and
blog posts as well Shark Tank, I am really beginning to appreciate his
business sense.

300 of 330 employees becoming millionaires within a year of IPO. With the
amount of dilution most startups go through after the multiple rounds, this is
an unimaginable outcome nowadays.

~~~
darkmirage
Is it really business sense or just being lucky to IPO in a huge bubble?

Did Broadcast.com really create value for the economy that the employees were
rewarded for, or were they just on the lucky end of a huge unsustainable
wealth transfer from retail investors to startup founders?

~~~
x0x0
All you have to do for startup success is find an accidentally rich sucker
willing to pay $10k _per user_.

Good on Cuban for selling to a giant fool, but I'm not sure recognizing a
sucker and selling to him or her is really all that broadly translatable a
skill. My guess is the problem is the too-small supply of over-wealthy
suckers.

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nugget
As an investor I am familiar with often-cited data that shows how small and
mid cap stocks have traditionally outperformed large cap stocks over time. I
wonder if this cherry picking of returns whereby the fastest growing small
companies leapfrog the public capital markets completely and only go public
once they've captured the majority of returns will impact this historical
trend.

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sjg007
I think Cuban is spot on in his assessment. It's basically not worth it unless
you can find a secondary market buyer. Feels like musical chairs. And whatever
you can't sell, with preferred shares outstanding, makes it seem like all bets
are off, unless you can IPO which at least gives you a chance.

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aaronbrethorst
Strangely, the word "revenue" is not mentioned in that blog post once. Does
anyone know if Broadcast.com ever made a meaningful amount of money before
Yahoo! acquired them for $5.7 billion(!)?

~~~
MichaelGlass
Regardless of revenue, they were purchased for "over $10,000 per".

I call horse shit.

I agree with this statement, though, "It is undeniably destructive to our
economy and future when many of our most innovative and exciting companies are
bought by their competition."

Perhaps we're not building monopolies but huge diversified holding companies.
My bet is on there actually being huge monopolistic effects of owning all the
data.

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csense
I somehow missed the headbar, it wasn't until I got to these comments that I
realized the author was Mark Cuban.

I thought he was spot-on even before I knew who he was.

I think one of the big problems is the Sarbanes-Oxley Act implemented after
the fall of Enron due to accounting problems. We wanted to make sure that
there were no IPO's defrauding the public, but the regulations went too far
and made sure there were no (or very few) IPO's, period.

And the IPO's that do happen are much much bigger. This is bad because much of
the wealth that's created by a new company is created during its growth phase.
In the 1900's, you could have simply _bought_ shares in the young Microsoft or
the young Apple -- at least there was a chance for some of that wealth went to
regular folks who invested in the stock market. In the 2000's, the young
Google and the young Facebook were only accessible to the rich -- VC firms and
accredited investors with the right connections.

This isn't just bad for regular investors, it's bad for companies too. A
public market has a lot more counterparties and is more competitive -- so (in
theory at least) a publicly traded company shouldn't have to give up as much
equity to raise a fixed amount of cash (because rather than being limited to
making offers to a few private investors, there's a continuous bidding war for
the stock in which pretty much anyone can be a buyer).

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lkrubner
The reliance on the stock markets is mostly a phenomena of the English
speaking countries. It is supported by aspects of law, some of which go back
to English Common Law, and most of which were shaped by the evolution of that
law during the 20th century, especially as the law related to debt, fraud, and
financial transparency.

Most developed countries take a different approach. In both Germany and
France, and also in Japan, it is common for businesses to rely on close
relationships with banks to get the financing they need.

Because of all this, I object to the tone of this paragraph, which makes it
sound as if there is no way forward for business, except for the stock market:

"Why take it public ? Because the stock market was a source of cash that could
help you grow. It was a marketing and validation opportunity that told
customers and prospects you had arrived. It was a liquidity opportunity that
while not guaranteed, if you could continue to grow the company over the long
haul, would value your company at a multiple of earnings and allow me, my
investors (many who were close friends) and my employees to increase our net-
worth and cash holdings."

There is an alternate way to interpret the changes of law and finance during
the last 25 years: that the USA is converging toward a model that has
similarities to that used in other developed countries. There is nothing wrong
with this trend. There may a lot of positives to this trend. Merely focusing
on the end of the old system by no means proves that the new system is bad.

~~~
Ologn
> The reliance on the stock markets is mostly a phenomena of the English
> speaking countries

I know more about how it works in the US than in other English-speaking
countries.

That listed US non-financial corporations attain capital via stock issuances,
initial or subsequent, is a kind of mythology. From a century back until now,
less than 5% of US non-financial corporate capital expenditures are from
capital raised by stock issuances.

If you look at the numbers, it mostly works in the US in the same manner as
Germany, France, Japan etc. To raise capital, corporations reinvest profits,
they go to the banks, they sell bonds. The idea that stock exchanges are
heavily involved with companies raising capital is a widespread one, but that
has more to do with the aptitude of stock exchange PR departments than
reality.

~~~
sharemywin
You can't go to a bank for advertising money or to write code. wanna buy a
building got 20%-40% down and a revenue stream for the last 2 years to pay for
no problem. equipment maybe.

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tomc1985
I'm not sure I agree with his "dead money" assessment... if its parked in a
bank it is still providing money to the bank, which can be doled out in loans.

~~~
sportanova
There's this notion going around that money is stored in some "rich person
warehouse" never to be seen again when it isn't invested in a clean tech / end
income equality social venture

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jostmey
It only seems bad to those in business of pushing out IPOs. To everyone else,
it appears as a market correction.

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ojbyrne
This is like saying that the decimation of the housing bubble has hurt the
economy and worse. Broadcast.com is the classic example of a completely
worthless business flipped to a clueless buyer.

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pitt1980
if a founder was recruiting you as an employee, and told you their strategy
was to shoot for an IPO instead of shooting for an acquisition

would that have any tangible value to you as a prospective employee?

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lowglow
Can private companies not offer dividends to their stock holders?

~~~
stalcottsmith
Of course they can. This has nowhere near the wealth spreading effects of an
IPO though. First of all, most employees do not own shares but rather options.
Option-holders do not receive dividends. You must exercise options to become a
shareholder and most rank and file people cannot do this without selling the
stock at the same time because it requires them to put cash in. The kind of
middle class folks Mr. Cuban wants to enrich do not typically have thousands
to invest in their employer.

I did this once prior to an acquisition of a company I worked for and lost the
money. It's pretty much a stupid move unless you are already wealthy and a
founder or controlling exec with better insight and control over the outcome.

Also, when an employee exercises options and then sells the resulting share in
a public company, they receive a multiple of earnings. Earnings != dividends
but suppose all the earnings in a period were paid out as a dividend (they
wont be of course) -- the shareholder will get only that amount whereas if
they sell the share, they will receive a multiple often 10-15x or more of
earnings. Most people benefit more from an exciting lump sum payout than an
unpredictable drip at a time.

