6 ms·

So how do the "rest of us" profit from these IPOs?

by allthenews 9y ago

maxxxxx 9y ago
I don't think these IPOs are designed to make profits for the rest of us.
- adventured 9y ago
  That depends on what you're buying. Atlassian has tripled since the early days of its post IPO trading. Shopify is up 5-6 fold in two years. Square is up four fold in 2.x years. Baozun is up seven fold in 2.x years.
  - mistermann 9y ago
    I've thought for quite some time that rather than the broader overall market being allowed to participate in the possibility of crazy gains from technology startups, the rise of the VC financing model has resulted in the lion's share of gains (and losses) going to an elite group of well connected people, and once the easiest money is made, let the market have what's left over in a traditional IPO. As you point out, there are still some examples of fantastic returns, but considering how the world has been transformed by startups, I don't recall reading very many stories of individual investors getting in early and making a killing, but I do recall reading plenty of stories of startups (that obviously needed significant funding along the way) growing into multi-billion dollar enterprises.
    - sp527 9y ago
      Isn’t that just a long-winded way of saying that early investors, who take on more risk, earn superior returns? As for the barriers to the general public investing in risky startups, that’s a feature not a bug. Look no further than dotcom 1.0 or the present day ICO market to understand why.
      - mistermann 9y ago
        Not really, with initial and intermediate funding now being covered by deep pocketed VC's, the public no longer has the chance to invest in earlier stages of the development cycle. Regardless of whether this is good or bad, it is different.
        rhlsthm 9y ago
        This isn't really true. If you actually wanted to and tried to put in early stage money, you could. Lots of startups raise their first few hundred K from "friends and family" type rounds and are usually readily looking for small investors to write small (25k or even less) checks. I would bet within a couple degrees of separation within your network you can find someone raising money for a project you're at least somewhat interested in. There are also platforms like AngelList that are making it easier to fund deals with small money.
        lovich 9y ago
        How many of those people get pushed out by later VC money because they want to clear up the cap table?
        mistermann 9y ago
        It's not true that it's different? How might an individual know about and do some baseline reasonable due diligence on these opportunities as identically easily as he could with a publicly listed stock? And why do VC's bother going through all the work, if the outcome is no different than if they'd simply have left things be as they were, with these companies getting funding from the public markets?
    - matte_black 9y ago
      This is something you can believe only if you think the vast majority of startups are making these returns. The fact is the lions share of risk also goes to VCs. If you gave an average investor the kind of deal flow that big name VCs have access to you’d fry their central nervous system. YC, for all it’s prestige, has only had one startup actually IPO, and only recently. Can an average investor survive this kind of torture? Never knowing if maybe one day all the money they put down will actually net some return? Knowing that they will have to continue investing or else hang all their hope on what they’ve invested in so far? There’s plenty of sure money to be made buying post IPO, be content with that.
      - maxxxxx 9y ago
        An IPO is not the only way for VCs to make money. When a company raises money there is often a chance for the earlier investors to sell their shares to new investors. At the time time of the IPO they have already made a lot of money.
      - mistermann 9y ago
        > YC, for all it’s prestige, has only had one startup actually IPO, and only recently. That may be perfectly consistent with my point - VC's typically provide multiple large rounds of financing, something that formerly would have required going to the public markets, and this can delay IPO's until companies are heavyweights and most of the big gains are in the bag.
      - nathan_f77 9y ago
        There's only been one IPO, but there's been ~83 exits: http://yclist.com http://yclist.com (Only select the "Show Exited" checkbox.)
  - toephu2 9y ago
    So? A rising tide lifts all boats.
    - adventured 9y ago
      You don't buy these companies to catch a temporary rising tide. Market timing is more often financial suicide, one of the worst mistakes amateur investors make. You buy for the growth and long-term picture. If you believe in the growth potential, you buy in at an early opportunity. ServiceNow's stock has gone up six fold in less than six years. Their revenue has climbed from $424m in 2013, to $1.93b in 2017. The last four quarters they've brought their burn rate down to meaningless while maintaining the growth, with immense gross profit margins that imply they'll likely become nicely profitable in the future. That's a story not about rising tides, it's about the growth in the business and its future prospects. Ask GE if rising tides lift all boats. Or AT&T, a functional, highly profitable business whose stock hasn't gone up in five years. Or Exxon, whose stock is down over five years. Or Procter & Gamble, which is still a thriving business, and whose stock also hasn't moved in five years. Those were all considered world-class blue chip stocks in the recent past.
      - wil421 9y ago
        Let’s not forgot Apple’s rise, fall, and post 2000 rise again. If you were young in the 80s, bought Apple, and planned to save it for retirement you would be sitting on a nice chunk right about now.
        maxxxxx 9y ago
        In the 90s there was also a very good chance for ending up with 0.
        wil421 9y ago
        Here is a pretty decent article about 90s companies [1]. Didn’t realize CompuServe was owned by H&R Block. [1]https://www.npr.org/sections/alltechconsidered/2016/07/25/487097344/the-big-internet-brands-of-the-90s-where-are-they-now https://www.npr.org/sections/alltechconsidered/2016/07/25/48...
adventured 9y ago
Pick the right growth candidate, hold your nose at the valuations, buy and hold for a few years until the growth catches the fundamentals up. Or wait until (assuming) the market drops at some point and buy the growth at dramatically more reasonable valuations. I'd also say buy what you know; that is, if you have experience with a company and know that their products are particularly good, providing the company a likely advantage over time assuming they're well run. I don't know much about Zuora for example (so if I want to buy it, I'll spend a lot of time on research), but I plan to stalk DocuSign for a reasonable entry point as I know their products well and I like their position.
- deleted 9y ago
  [deleted]
Buge 9y ago
As it becomes more profitable for VCs to invest in startups, they invest more and in more startups. Now that there are more startups and they have more money, they need to hire more software engineers, and have more resources to do so. So software engineer salaries go up.
mathattack 9y ago
Work for a bunch of startups for 1-4 year stints. Don't leave until you're at least 1/4 vested. Then if you don't think you're on a rocket ship, find another. This is a common career path among silicon valley folks. If you're not an engineer or talented executive, then make money another way and start angel investing and take a long time horizon.
whataretensors 9y ago
The same way you benefit from a successful startup. You don't.

So how do the "rest of us" profit from these IPOs?

maxxxxx 9y ago

I don't think these IPOs are designed to make profits for the rest of us.

adventured 9y ago
That depends on what you're buying. Atlassian has tripled since the early days of its post IPO trading. Shopify is up 5-6 fold in two years. Square is up four fold in 2.x years. Baozun is up seven fold in 2.x years.
- mistermann 9y ago
  I've thought for quite some time that rather than the broader overall market being allowed to participate in the possibility of crazy gains from technology startups, the rise of the VC financing model has resulted in the lion's share of gains (and losses) going to an elite group of well connected people, and once the easiest money is made, let the market have what's left over in a traditional IPO. As you point out, there are still some examples of fantastic returns, but considering how the world has been transformed by startups, I don't recall reading very many stories of individual investors getting in early and making a killing, but I do recall reading plenty of stories of startups (that obviously needed significant funding along the way) growing into multi-billion dollar enterprises.
  - sp527 9y ago
    Isn’t that just a long-winded way of saying that early investors, who take on more risk, earn superior returns? As for the barriers to the general public investing in risky startups, that’s a feature not a bug. Look no further than dotcom 1.0 or the present day ICO market to understand why.
    - mistermann 9y ago
      Not really, with initial and intermediate funding now being covered by deep pocketed VC's, the public no longer has the chance to invest in earlier stages of the development cycle. Regardless of whether this is good or bad, it is different.
      - rhlsthm 9y ago
        This isn't really true. If you actually wanted to and tried to put in early stage money, you could. Lots of startups raise their first few hundred K from "friends and family" type rounds and are usually readily looking for small investors to write small (25k or even less) checks. I would bet within a couple degrees of separation within your network you can find someone raising money for a project you're at least somewhat interested in. There are also platforms like AngelList that are making it easier to fund deals with small money.
        lovich 9y ago
        How many of those people get pushed out by later VC money because they want to clear up the cap table?
        mistermann 9y ago
        It's not true that it's different? How might an individual know about and do some baseline reasonable due diligence on these opportunities as identically easily as he could with a publicly listed stock? And why do VC's bother going through all the work, if the outcome is no different than if they'd simply have left things be as they were, with these companies getting funding from the public markets?
  - matte_black 9y ago
    This is something you can believe only if you think the vast majority of startups are making these returns. The fact is the lions share of risk also goes to VCs. If you gave an average investor the kind of deal flow that big name VCs have access to you’d fry their central nervous system. YC, for all it’s prestige, has only had one startup actually IPO, and only recently. Can an average investor survive this kind of torture? Never knowing if maybe one day all the money they put down will actually net some return? Knowing that they will have to continue investing or else hang all their hope on what they’ve invested in so far? There’s plenty of sure money to be made buying post IPO, be content with that.
    - maxxxxx 9y ago
      An IPO is not the only way for VCs to make money. When a company raises money there is often a chance for the earlier investors to sell their shares to new investors. At the time time of the IPO they have already made a lot of money.
    - mistermann 9y ago
      > YC, for all it’s prestige, has only had one startup actually IPO, and only recently. That may be perfectly consistent with my point - VC's typically provide multiple large rounds of financing, something that formerly would have required going to the public markets, and this can delay IPO's until companies are heavyweights and most of the big gains are in the bag.
    - nathan_f77 9y ago
      There's only been one IPO, but there's been ~83 exits: http://yclist.com http://yclist.com (Only select the "Show Exited" checkbox.)
- toephu2 9y ago
  So? A rising tide lifts all boats.
  - adventured 9y ago
    You don't buy these companies to catch a temporary rising tide. Market timing is more often financial suicide, one of the worst mistakes amateur investors make. You buy for the growth and long-term picture. If you believe in the growth potential, you buy in at an early opportunity. ServiceNow's stock has gone up six fold in less than six years. Their revenue has climbed from $424m in 2013, to $1.93b in 2017. The last four quarters they've brought their burn rate down to meaningless while maintaining the growth, with immense gross profit margins that imply they'll likely become nicely profitable in the future. That's a story not about rising tides, it's about the growth in the business and its future prospects. Ask GE if rising tides lift all boats. Or AT&T, a functional, highly profitable business whose stock hasn't gone up in five years. Or Exxon, whose stock is down over five years. Or Procter & Gamble, which is still a thriving business, and whose stock also hasn't moved in five years. Those were all considered world-class blue chip stocks in the recent past.
    - wil421 9y ago
      Let’s not forgot Apple’s rise, fall, and post 2000 rise again. If you were young in the 80s, bought Apple, and planned to save it for retirement you would be sitting on a nice chunk right about now.
      - maxxxxx 9y ago
        In the 90s there was also a very good chance for ending up with 0.
        wil421 9y ago
        Here is a pretty decent article about 90s companies [1]. Didn’t realize CompuServe was owned by H&R Block. [1]https://www.npr.org/sections/alltechconsidered/2016/07/25/487097344/the-big-internet-brands-of-the-90s-where-are-they-now https://www.npr.org/sections/alltechconsidered/2016/07/25/48...

adventured 9y ago

Pick the right growth candidate, hold your nose at the valuations, buy and hold for a few years until the growth catches the fundamentals up. Or wait until (assuming) the market drops at some point and buy the growth at dramatically more reasonable valuations. I'd also say buy what you know; that is, if you have experience with a company and know that their products are particularly good, providing the company a likely advantage over time assuming they're well run. I don't know much about Zuora for example (so if I want to buy it, I'll spend a lot of time on research), but I plan to stalk DocuSign for a reasonable entry point as I know their products well and I like their position.

deleted 9y ago
[deleted]

Buge 9y ago

As it becomes more profitable for VCs to invest in startups, they invest more and in more startups. Now that there are more startups and they have more money, they need to hire more software engineers, and have more resources to do so. So software engineer salaries go up.

mathattack 9y ago

Work for a bunch of startups for 1-4 year stints. Don't leave until you're at least 1/4 vested. Then if you don't think you're on a rocket ship, find another. This is a common career path among silicon valley folks. If you're not an engineer or talented executive, then make money another way and start angel investing and take a long time horizon.

whataretensors 9y ago

The same way you benefit from a successful startup. You don't.