10 ms·

1/4 of companies that IPO'd in 2020-2021 trades below $2, risking delisting

90 points by Bostonian 4y ago

BWStearns 4y ago
Really glad we regulated earlier IPOs out of existence so mom and pop traders can only invest in "safe" companies after 99% of the upside is gone.
- chollida1 4y ago
  > Really glad we regulated earlier IPOs out of existence so mom and pop traders can only invest in "safe" companies after 99% of the upside is gone. reply Can you explain how we regulated IPO's out of existence?
  - BWStearns 4y ago
    _Earlier IPOs_ out of existence. The traditional explanation for why companies are waiting to be decacorns before IPO was that Sarbox basically made it so burdensome to IPO that you just didn't do it early[0]. The argument for this extra regulation is that it made it hard to lose your shirt to something like Enron, the argument against is that an individual (non accredited) investor now can't get into companies early when they still have steep growth ahead. SPACs seem to have brought back the sketchy early companies to the public markets while high quality companies still stay private longer. The current argument for late IPOing seems to be abundant capital for later rounds but we'll see how that plays out given gesturing around the state of things. [0] https://www.vox.com/2014/9/11/6134529/a-new-york-stock-exchange-exec-explains-why-ipos-are-becoming-less https://www.vox.com/2014/9/11/6134529/a-new-york-stock-excha... [1] https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/grow-fast-or-die-slow-why-unicorns-are-staying-private https://www.mckinsey.com/industries/technology-media-and-tel...
    - chollida1 4y ago
      Sorry, appreciate the edit about earlier IPO's, its an important word to your point and was accidentally omitted, my bad. I think we can agree Sarbox has done nothing to slow down IPO's. I have yet to hear a CEO say they'd go public but Sarbox has made it burdensome. I've gone over this before in nauseating detail. Sarbox just made clear what best practices all companies should be doing, public or not. I have yet to hear any burden that it imposes on companies that would prevent them from going public. So I think we can skip Sarbox as a reason. unless someone can show a CEO claiming they'd be public now if not for Sarbox. > The current argument for late IPOing seems to be abundant capital for later rounds but we'll see how that plays out given gesturing around the state of things. If this is true, we should see a bunch of early stage companies going public now as the free money era is over. I'll wait to see by the end of the year or even the end of next year, but it doesn't look like the free money hypothesis is the full reason here.
      - theGnuMe 4y ago
        I've heard CEOs say internally that SarBox is preventing an IPO. But when they say that it just remember it is BS.
- gamblor956 4y ago
  Sarbanes-Oaxley didn't regulate "earlier" IPOs out of existence. It just made companies provide "mom and pop" traders with proper financials so they could make informed decisions about what they were investing in. The handful of startups that might have generated a possible upside for retail investors would have been able to IPO early even under SARBOX because their financials would have supported an early IPO (as in a proper IPO, not a SPAC), but retail investors would not have shared in this upside anyway because those IPOs would have been heavily oversubscribed by institutional investors. The companies in this article would never have generated upsides for mom and pop investors, because they lacked the financials or business models to support any upside. SARBOX saved mom and pop investors hundreds of billions of dollars that would otherwise have just lined the pockets of investment banks and VCs. This is a good thing.
Bostonian 4y ago
https://archive.vn/FVPYd https://archive.vn/FVPYd I have wondered if there are predictors of when average returns of IPOs will be high. When the IPO market is hot and it is easy to list, that may be a bad time for retail investors to buy IPOs when they start trading.
- bombcar 4y ago
  I suspect IPOs are almost always dumping on the public. Some go on to perform great afterwards but on the whole if you think your shares are worth more than they’re priced why would you sell in an IPO?
  - martinald 4y ago
    Well in theory you have a much more liquid market to sell into in an IPO.
  - jacquesm 4y ago
    That's true to some degree. Historically an IPO was to raise capital for the company, now, more often than not it is to create a market for the stock so that early stockholders can cash out.
    - notfromhere 4y ago
      There's also an implicit maturation of the business since you have to comply with filing requirements, etc.
  - EGreg 4y ago
    VCs prop up money-losing unit economics to “reduce friction” while making the company grow quickly and dump on the public. Figure out the business model later. Rinse and repeat. For example WeWork with Neumann or Uber with Kalanick. Is negative unit economics better than a token with absolutely no utility? I would say yes - because they often create a valuable marketplace that serves customers and pays providers. They just find out later that they are in a race to the bottom with other platforms. Which means healthy market competition. However, if the stock continues to do well, it means the shareholder class (now representing public shareholders) continues to extract rents from both sides of the ecosystem. Uber is still extracting rents years later… drivers pay it half what we pay them. An open source platform economy would have been better for the public, with none of the controversy of Big Tech platforms. All these Ubers could have been had source competitors a long time ago. Why don’t they?
HardwareLust 4y ago
This sounds bad, but how does it compare to other 2-year periods, like 2018-2019, or the two years before the last internet bubble? Need some context.
remram 4y ago
Is that news? What is the usual survival rate of startups?
- jacquesm 4y ago
  Companies that IPO are no longer in the startup phase.
  - remram 4y ago
    That's fair. Still I wonder what is the survival rate after IPO.
    - jacquesm 4y ago
      That all depends on the timescale you are looking at. And there are plenty of companies that are taken off the stock exchange again at some point ('going private').
- username_my1 4y ago
  Yes this is a disaster for the public market. It should be illegal to bring a company public without proven positive unit economics. Self driving, deep tech… all should stay within big corp R&D
  - remram 4y ago
    Why? Public companies are not funded by taxpayer money, if you buy shares of a company that just IPO'd you should know what you are getting.
sph 4y ago
Title is "Oatly, Other Deflated IPO Stocks Haunt New-Issue Market" -- In June 2021, "Oatly priced its initial public offering at $17 per share, giving it an implied valuation of $10 billion." 10 billion dollars for an oat drink company. We're way overdue a correction on tech stocks, the time for free, cheap money is over.
- Ekaros 4y ago
  And oat drink should in no way be considered a tech stock. It is even less one than for example Tesla...
  - sph 4y ago
    Right. With tech stock, I meant a startup venture capitals and investors were eager to give a lot of money to. Usually those are tech stocks, but plant-based ultra-processed food startups have become quite prominent in VC portfolios lately, see Beyond Meat.
    - dokein 4y ago
      I suspect that VCs are disproportionately exposed to people (e.g. upper and upper-middle class tech workers in SV) that are open to e.g. oat milk, meat substitutes, etc., and so bias towards everyone in the US being similarly open. Of course they probably know intellectually it's not true but it's hard to overcome the subtle biases formed by one's day-to-day experiences. Similarly my understanding is that Cambly had a hard time raising their early round because all those VCs already knew English.
      - Ekaros 4y ago
        And they might think they have done so well with software and SaaS in low interest rate enviroment that they will do well with physical products. Not seeing that food is much harder market to penetrate, with often low margins and products spoiling in various ways, not forget fun of manufacturing and distributing to more than Amazon or single warehouse.
      - 4y ago
pclmulqdq 4y ago
I assume that almost all of these are SPAC stocks, which doesn't particularly surprise me. It turns out the whole IPO process is good for price discovery, and when you bypass it, you get some bad results.
- sh1mmer 4y ago
  Literally in the first line of the article > More than one in four of the nearly 600 companies that went public via a traditional IPO
  - pclmulqdq 4y ago
    The companies that IPOed are the SPACS. The companies they acquired are the ones that are dragging them under. Edit: To clarify, the company that IPOs is a company like "CFII" (CF Finance Acquisition Corp. II). These companies are called SPACs, but they go through an IPO process themselves. The IPO is pretty fast because everyone knows what the shares are worth, but it is an IPO nonetheless. Most of the SPACs IPOed in 2020-2021. If they buy a company and then fail, that would probably be counted as a failure of a company that IPOed in 2020.
    - chrisgd 4y ago
      But you would still say that a company went public vis SPAC IPO.
    - kasey_junk 4y ago
      “Many companies that went public in the surge of mergers involving SPACs, or special-purpose acquisition companies, also are faring poorly.” Just read the article…
  - chrisgd 4y ago
    Literally, in the next line of the article > Many companies that went public in the surge of mergers involving SPACs, or special-purpose acquisition companies, also are faring poorly.
benj111 4y ago
>risking delisting Why? I guess its something to do with rules about penny stocks. but in the modern world theres no reason why we can't have stocks at $0.00002. I'm guessing this is a USian thing? here in the uk stocks are regularly priced under £2. Lloyds Bank is a ftse 100 company currently below 45p
- mbg721 4y ago
  My naive layman question would be, what does that actually mean? Couldn't they just issue fewer shares and get a higher price for each one?
  - benj111 4y ago
    Yes. if you have 100,000 shares in circulation at $10 each you have a market cap of $1,000,000. the same as if you had 10 x $100,000 shares, or 1,000,000 x $1 shares. but why the rule? theres no reason why my $1 share can't rise 0.1% just like the $10 share. they don't hand me a 1/10th penny coin. so why arbitrarily decide that stocks below $x are bad? yes a 1c movement is proportionately more, but if youre saying that humans are so obviously psychologically anchored by such round numbers, then the least of humanities problems, and finances, and capitalisms, is the price of a share.
    - deleted 4y ago
      [deleted]
- malfist 4y ago
  Stocks that trade under $5/share are considered "penny stocks", exchanges generally don't want penny stocks on their list because they don't want to endorse them. They're highly volatile, and can be easily manipulated. I believe for DIJA if they have a valuation under $2 for longer than a year they get delisted. This doesn't mean you can't trade them anymore, they just become OTC (over the counter) stocks. Many brokers offer access to OTC stocks, but liquidity is a real concern with those stocks.
  - 4y ago
JCM9 4y ago
It’s going to be a painful 2023 for these companies and some likely won’t make it or will be sold off in fire sales. Not to sound cold but the market needs a good cleansing and some of these companies that had unrealistic valuations need to get flushed out of the system. It’s not pleasant for those that find themselves in the wrong place at the wrong time but there were just some completely baseless valuations set during funding rounds and IPOs in 2020-early 2022 and now that needs to get cleaned up. Cash and profit are king again. Anyone without both (or a absolute ton of cash to get through the market cleanse without raising) is in for a painful ride.
- _fat_santa 4y ago
  It's actually quite common to see "heard thinning" like this. Even as far back as the dotcom bubble, tons of internet companies, many went bust, eBay and Amazon and a few others survived becoming the giants they are today. Or take rideshare companies, there were a number of alternatives to Uber and Lyft back in the day like Sidecar but those shuttered. Heck we just saw it (albiet for a different set of messed up reasons) the thinning of the heard in the crypto space, both on the project and the exchange side.... The cycle always seems to follow: 1. Cash enters the system through low interest rates by the fed and other economic factor (boom times). 2. Tons of new companies emerge, all hyped, all with shiny new products and tons of marketing. 3. Things are good for a while but eventually hard times hit. All the companies propped up by hype and that don't truly have a good business in place will fall the wayside. 4. The few companies that weather the storm tend to last longer and become established players in the space.
  - JCM9 4y ago
    Absolutely. For anyone that’s been for a while the last hype period was a case of “I’ve seen this play before and I know what happens in Act III.” It’s been a while since we’ve had a solid down market and thus there are a lot of people that haven’t seen how the play ends yet but are about to find out. The optimistic long term view is that after the storm the cycle begins anew and new companies rise from the ashes.
    - 4y ago
blippage 4y ago
To my mind, Juicero is iconic of the problem. It was a solution to a problem that didn't exist, but bunging on "With the Internet" somehow made it a darling. It's a pretty old trick; sprinkling some talismanic phrase over whatever nonsense it is you're flogging. I wonder to what extent the chip issue will resolve itself as we realise that not everything has to be IoT. I'm probably being overly cynical on this, though. There's still a lot of genuine uses for chips. I guess the trick is to wait for a year or two, THEN invest in new tech IPOs. We need a bit of time for the crap to be flushed from the system. Do that, and there's probably a fortune to be made, as the tech that will IPO'd is likely to be of much higher quality. I missed a real trick in not buying Google, for example. When did that float? 2002, or thereabouts. The markets were in real value territory the, so it was a good time to invest. I figured that Google were just being flashy, but I was too cynical at the time. Hindsight is always 20/20 though. Dunno, maybe they'll be someone out there doing something interesting with RISC-V that has a potential to exploit some niche market. It doesn't have to be "Web 3.0".

90 points by Bostonian 4y ago

Really glad we regulated earlier IPOs out of existence so mom and pop traders can only invest in "safe" companies after 99% of the upside is gone.

chollida1 4y ago
> Really glad we regulated earlier IPOs out of existence so mom and pop traders can only invest in "safe" companies after 99% of the upside is gone. reply Can you explain how we regulated IPO's out of existence?
- BWStearns 4y ago
  _Earlier IPOs_ out of existence. The traditional explanation for why companies are waiting to be decacorns before IPO was that Sarbox basically made it so burdensome to IPO that you just didn't do it early[0]. The argument for this extra regulation is that it made it hard to lose your shirt to something like Enron, the argument against is that an individual (non accredited) investor now can't get into companies early when they still have steep growth ahead. SPACs seem to have brought back the sketchy early companies to the public markets while high quality companies still stay private longer. The current argument for late IPOing seems to be abundant capital for later rounds but we'll see how that plays out given gesturing around the state of things. [0] https://www.vox.com/2014/9/11/6134529/a-new-york-stock-exchange-exec-explains-why-ipos-are-becoming-less https://www.vox.com/2014/9/11/6134529/a-new-york-stock-excha... [1] https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/grow-fast-or-die-slow-why-unicorns-are-staying-private https://www.mckinsey.com/industries/technology-media-and-tel...
  - chollida1 4y ago
    Sorry, appreciate the edit about earlier IPO's, its an important word to your point and was accidentally omitted, my bad. I think we can agree Sarbox has done nothing to slow down IPO's. I have yet to hear a CEO say they'd go public but Sarbox has made it burdensome. I've gone over this before in nauseating detail. Sarbox just made clear what best practices all companies should be doing, public or not. I have yet to hear any burden that it imposes on companies that would prevent them from going public. So I think we can skip Sarbox as a reason. unless someone can show a CEO claiming they'd be public now if not for Sarbox. > The current argument for late IPOing seems to be abundant capital for later rounds but we'll see how that plays out given gesturing around the state of things. If this is true, we should see a bunch of early stage companies going public now as the free money era is over. I'll wait to see by the end of the year or even the end of next year, but it doesn't look like the free money hypothesis is the full reason here.
    - theGnuMe 4y ago
      I've heard CEOs say internally that SarBox is preventing an IPO. But when they say that it just remember it is BS.
gamblor956 4y ago
Sarbanes-Oaxley didn't regulate "earlier" IPOs out of existence. It just made companies provide "mom and pop" traders with proper financials so they could make informed decisions about what they were investing in. The handful of startups that might have generated a possible upside for retail investors would have been able to IPO early even under SARBOX because their financials would have supported an early IPO (as in a proper IPO, not a SPAC), but retail investors would not have shared in this upside anyway because those IPOs would have been heavily oversubscribed by institutional investors. The companies in this article would never have generated upsides for mom and pop investors, because they lacked the financials or business models to support any upside. SARBOX saved mom and pop investors hundreds of billions of dollars that would otherwise have just lined the pockets of investment banks and VCs. This is a good thing.

Bostonian 4y ago

https://archive.vn/FVPYd https://archive.vn/FVPYd I have wondered if there are predictors of when average returns of IPOs will be high. When the IPO market is hot and it is easy to list, that may be a bad time for retail investors to buy IPOs when they start trading.

bombcar 4y ago
I suspect IPOs are almost always dumping on the public. Some go on to perform great afterwards but on the whole if you think your shares are worth more than they’re priced why would you sell in an IPO?
- martinald 4y ago
  Well in theory you have a much more liquid market to sell into in an IPO.
- jacquesm 4y ago
  That's true to some degree. Historically an IPO was to raise capital for the company, now, more often than not it is to create a market for the stock so that early stockholders can cash out.
  - notfromhere 4y ago
    There's also an implicit maturation of the business since you have to comply with filing requirements, etc.
- EGreg 4y ago
  VCs prop up money-losing unit economics to “reduce friction” while making the company grow quickly and dump on the public. Figure out the business model later. Rinse and repeat. For example WeWork with Neumann or Uber with Kalanick. Is negative unit economics better than a token with absolutely no utility? I would say yes - because they often create a valuable marketplace that serves customers and pays providers. They just find out later that they are in a race to the bottom with other platforms. Which means healthy market competition. However, if the stock continues to do well, it means the shareholder class (now representing public shareholders) continues to extract rents from both sides of the ecosystem. Uber is still extracting rents years later… drivers pay it half what we pay them. An open source platform economy would have been better for the public, with none of the controversy of Big Tech platforms. All these Ubers could have been had source competitors a long time ago. Why don’t they?

HardwareLust 4y ago

This sounds bad, but how does it compare to other 2-year periods, like 2018-2019, or the two years before the last internet bubble? Need some context.

remram 4y ago

Is that news? What is the usual survival rate of startups?

jacquesm 4y ago
Companies that IPO are no longer in the startup phase.
- remram 4y ago
  That's fair. Still I wonder what is the survival rate after IPO.
  - jacquesm 4y ago
    That all depends on the timescale you are looking at. And there are plenty of companies that are taken off the stock exchange again at some point ('going private').
username_my1 4y ago
Yes this is a disaster for the public market. It should be illegal to bring a company public without proven positive unit economics. Self driving, deep tech… all should stay within big corp R&D
- remram 4y ago
  Why? Public companies are not funded by taxpayer money, if you buy shares of a company that just IPO'd you should know what you are getting.

sph 4y ago

Title is "Oatly, Other Deflated IPO Stocks Haunt New-Issue Market" -- In June 2021, "Oatly priced its initial public offering at $17 per share, giving it an implied valuation of $10 billion." 10 billion dollars for an oat drink company. We're way overdue a correction on tech stocks, the time for free, cheap money is over.

Ekaros 4y ago
And oat drink should in no way be considered a tech stock. It is even less one than for example Tesla...
- sph 4y ago
  Right. With tech stock, I meant a startup venture capitals and investors were eager to give a lot of money to. Usually those are tech stocks, but plant-based ultra-processed food startups have become quite prominent in VC portfolios lately, see Beyond Meat.
  - dokein 4y ago
    I suspect that VCs are disproportionately exposed to people (e.g. upper and upper-middle class tech workers in SV) that are open to e.g. oat milk, meat substitutes, etc., and so bias towards everyone in the US being similarly open. Of course they probably know intellectually it's not true but it's hard to overcome the subtle biases formed by one's day-to-day experiences. Similarly my understanding is that Cambly had a hard time raising their early round because all those VCs already knew English.
    - Ekaros 4y ago
      And they might think they have done so well with software and SaaS in low interest rate enviroment that they will do well with physical products. Not seeing that food is much harder market to penetrate, with often low margins and products spoiling in various ways, not forget fun of manufacturing and distributing to more than Amazon or single warehouse.
    - 4y ago

pclmulqdq 4y ago

I assume that almost all of these are SPAC stocks, which doesn't particularly surprise me. It turns out the whole IPO process is good for price discovery, and when you bypass it, you get some bad results.

sh1mmer 4y ago
Literally in the first line of the article > More than one in four of the nearly 600 companies that went public via a traditional IPO
- pclmulqdq 4y ago
  The companies that IPOed are the SPACS. The companies they acquired are the ones that are dragging them under. Edit: To clarify, the company that IPOs is a company like "CFII" (CF Finance Acquisition Corp. II). These companies are called SPACs, but they go through an IPO process themselves. The IPO is pretty fast because everyone knows what the shares are worth, but it is an IPO nonetheless. Most of the SPACs IPOed in 2020-2021. If they buy a company and then fail, that would probably be counted as a failure of a company that IPOed in 2020.
  - chrisgd 4y ago
    But you would still say that a company went public vis SPAC IPO.
  - kasey_junk 4y ago
    “Many companies that went public in the surge of mergers involving SPACs, or special-purpose acquisition companies, also are faring poorly.” Just read the article…
- chrisgd 4y ago
  Literally, in the next line of the article > Many companies that went public in the surge of mergers involving SPACs, or special-purpose acquisition companies, also are faring poorly.

benj111 4y ago

>risking delisting Why? I guess its something to do with rules about penny stocks. but in the modern world theres no reason why we can't have stocks at $0.00002. I'm guessing this is a USian thing? here in the uk stocks are regularly priced under £2. Lloyds Bank is a ftse 100 company currently below 45p

mbg721 4y ago
My naive layman question would be, what does that actually mean? Couldn't they just issue fewer shares and get a higher price for each one?
- benj111 4y ago
  Yes. if you have 100,000 shares in circulation at $10 each you have a market cap of $1,000,000. the same as if you had 10 x $100,000 shares, or 1,000,000 x $1 shares. but why the rule? theres no reason why my $1 share can't rise 0.1% just like the $10 share. they don't hand me a 1/10th penny coin. so why arbitrarily decide that stocks below $x are bad? yes a 1c movement is proportionately more, but if youre saying that humans are so obviously psychologically anchored by such round numbers, then the least of humanities problems, and finances, and capitalisms, is the price of a share.
  - deleted 4y ago
    [deleted]
malfist 4y ago
Stocks that trade under $5/share are considered "penny stocks", exchanges generally don't want penny stocks on their list because they don't want to endorse them. They're highly volatile, and can be easily manipulated. I believe for DIJA if they have a valuation under $2 for longer than a year they get delisted. This doesn't mean you can't trade them anymore, they just become OTC (over the counter) stocks. Many brokers offer access to OTC stocks, but liquidity is a real concern with those stocks.
- 4y ago

JCM9 4y ago

It’s going to be a painful 2023 for these companies and some likely won’t make it or will be sold off in fire sales. Not to sound cold but the market needs a good cleansing and some of these companies that had unrealistic valuations need to get flushed out of the system. It’s not pleasant for those that find themselves in the wrong place at the wrong time but there were just some completely baseless valuations set during funding rounds and IPOs in 2020-early 2022 and now that needs to get cleaned up. Cash and profit are king again. Anyone without both (or a absolute ton of cash to get through the market cleanse without raising) is in for a painful ride.

_fat_santa 4y ago
It's actually quite common to see "heard thinning" like this. Even as far back as the dotcom bubble, tons of internet companies, many went bust, eBay and Amazon and a few others survived becoming the giants they are today. Or take rideshare companies, there were a number of alternatives to Uber and Lyft back in the day like Sidecar but those shuttered. Heck we just saw it (albiet for a different set of messed up reasons) the thinning of the heard in the crypto space, both on the project and the exchange side.... The cycle always seems to follow: 1. Cash enters the system through low interest rates by the fed and other economic factor (boom times). 2. Tons of new companies emerge, all hyped, all with shiny new products and tons of marketing. 3. Things are good for a while but eventually hard times hit. All the companies propped up by hype and that don't truly have a good business in place will fall the wayside. 4. The few companies that weather the storm tend to last longer and become established players in the space.
- JCM9 4y ago
  Absolutely. For anyone that’s been for a while the last hype period was a case of “I’ve seen this play before and I know what happens in Act III.” It’s been a while since we’ve had a solid down market and thus there are a lot of people that haven’t seen how the play ends yet but are about to find out. The optimistic long term view is that after the storm the cycle begins anew and new companies rise from the ashes.
  - 4y ago

blippage 4y ago

To my mind, Juicero is iconic of the problem. It was a solution to a problem that didn't exist, but bunging on "With the Internet" somehow made it a darling. It's a pretty old trick; sprinkling some talismanic phrase over whatever nonsense it is you're flogging. I wonder to what extent the chip issue will resolve itself as we realise that not everything has to be IoT. I'm probably being overly cynical on this, though. There's still a lot of genuine uses for chips. I guess the trick is to wait for a year or two, THEN invest in new tech IPOs. We need a bit of time for the crap to be flushed from the system. Do that, and there's probably a fortune to be made, as the tech that will IPO'd is likely to be of much higher quality. I missed a real trick in not buying Google, for example. When did that float? 2002, or thereabouts. The markets were in real value territory the, so it was a good time to invest. I figured that Google were just being flashy, but I was too cynical at the time. Hindsight is always 20/20 though. Dunno, maybe they'll be someone out there doing something interesting with RISC-V that has a potential to exploit some niche market. It doesn't have to be "Web 3.0".