> And as of Friday, at least 11 of 49 venture-capital-backed U.S. technology companies with IPOs since the start of 2014 traded below the per-share value where they last raised money as a private company, an analysis of stock-sale documents by The Wall Street Journal shows.
Here's why I think this matters. Previously tech companies, Microsoft being the prime example, paid employee's a fair market wage but then gave options or restricted stock as well. The rising stock price acted as a sort of bonus to employee's.
With companies now spending more time private and getting more of their gains as private companies, what's happening is that private equity and vc companies are now capturing more of those gains that the public would.
Employee's are also the one's holding the bag here. With their lockout periods after going public they are the most exposed to busted IPO's.
One other worrying trend is that investment banks are no longer backstopping the IPO's they shop. If you remember the Facebook IPO, there was a lot of buying at the ipo price from the book runners to ensure that facebook didn't drop below that price. The last few tech ipo's had no such support and happily "broke", or traded below their initial offering price.
This is why I wouldn't take less money just Because Startup. If they want to give me equity in some format, that's nice. I expect it to be worth $0 and if that lack of faith makes me seem like a bad employee, so be it. If I wanted to play the lottery I'd go buy some scratch tickets at the 7-11.
I'm perfectly willing to take less money for other reasons, but not in exchange for a lottery ticket.
> what's happening is that private equity and vc companies are now capturing more of those gains that the public would.
The vehicles are just different. One can certainly invest into a Fidelity or T. Rowe Price mutual fund that gobbles up those deals, with understanding of limited liquidity and opaque pricing being a risk.
There are also vehicles like GSV Capital, which hold securities of Palantir, Dropbox, etc. but are nevertheless publicly traded http://gsvcap.com/charts/
I thought these days IPOs are mainly a vehicle to sell stocks to the public where the investors have pretty much extracted all likely gains already. Backstopping something like Twitter would cost a lot of money.
On IPOs: don't the investment banks structure volume and price pre IPO in order to make sure that the IPO doesn't "break"? I would imagine that the owners of the IPO-ing company would want to write that into the contract somehow, after all that's what they're paying the IBs to do - price equity and court investors in order to ensure a successful IPO with a pop up in price that benefits shareholders. Or are they being structured with a quick exit at a high price for the founders in mind, which can then screw over locked out employees?
On employees getting screwed: I think Robert Solow had a great piece explaining why investors & business owners are capturing a larger share of corporate profits than employees. [1] Basically, regulation has become increasingly pro-corporation, anti-employee/union since Reagan, and this allows the investing class to capture a larger share of the economic "rent" profits created by regulation, much like land ownership regulation allows a landlord to extract rent from a tenant. Explained better here: https://news.ycombinator.com/item?id=10054735
I'm not sure it means much, given that the market as a whole has ended up pretty flat over the past year. The market was soaring while these companies were raising private capital; it's no surprise their valuations came down a bit as growth let up in the past six months or so.
> In a sign of wariness among pre-IPO investors, an analysis of funding rounds by law firm Fenwick & West LLP in March found that 30% of private companies valued at $1 billion or more promised a specified IPO price. In some cases, the companies agreed to give additional equity to investors if the IPO price wasn’t met.
This is not necessarily a "sign of wariness." The investors are just doing what reasonably sophisticated investors do: protecting against downside risk. As long as the companies they've invested in can get out to market, the investors really can't lose. The companies themselves and other shareholders lose.
> Dropbox received the $10 billion-valuation offer from BlackRock after just two days of investor meetings, said a person familiar with the fundraising.
The company and its valuation don't matter. The terms of the deal do. You can make enormous profits investing in bad companies if you negotiate great terms.
If BlackRock structured its investment well, which it almost certainly did, Dropbox could go public with a $5 billion valuation and BlackRock would still achieve the desired return.
As I wrote in a previous comment, it's kind of amusing that so many in Silicon Valley rail against Wall Street and "financial engineering" when the biggest "winners" of this tech boom are products of Wall Street and "financial engineering."[1]
>it's kind of amusing that so many in Silicon Valley rail against Wall Street and "financial engineering" when the biggest "winners" of this tech boom are products of Wall Street and "financial engineering."
A lot of people have an irrational hatred of high finance.
Different primarily as maxxxxx says: 'IPOs are mainly a vehicle to sell stocks to the public where the investors have pretty much extracted all likely gains already'
PLS god one more crash I need affordable house thx
with so many companies faltering after IPO, why do you as a an individual have any reason to stay at a company past it's IPO? seems like the best thing you can do for yourself is use the company's momentum of going public to ask for more money in a new a job
Partial vesting, and hope the price doesn't drop below your strike price. You might also enjoy where you work! The opportunities etc.. Some companies are long term companies.
Here's why I think this matters. Previously tech companies, Microsoft being the prime example, paid employee's a fair market wage but then gave options or restricted stock as well. The rising stock price acted as a sort of bonus to employee's.
With companies now spending more time private and getting more of their gains as private companies, what's happening is that private equity and vc companies are now capturing more of those gains that the public would.
Employee's are also the one's holding the bag here. With their lockout periods after going public they are the most exposed to busted IPO's.
One other worrying trend is that investment banks are no longer backstopping the IPO's they shop. If you remember the Facebook IPO, there was a lot of buying at the ipo price from the book runners to ensure that facebook didn't drop below that price. The last few tech ipo's had no such support and happily "broke", or traded below their initial offering price.