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One comment... Google and Facebook each tried to stick it to the bankers in their own ways. In the end both struggled as a result. Google tried to cut out ba

One comment... Google and Facebook each tried to stick it to the bankers in their own ways. In the end both struggled as a result. Google tried to cut out bankers and make them play by special "Just for the Google IPO" rules and rates. By creating a custom-IPO process, they saved on banker fees but wound up leaving an awful lot of money on the table. Facebook went the other way. They tried to grab every last penny on the table. Their stock underperformed post-IPO which isn't good either. You can put Twitter in an overreaction the other way - they didn't want to leave money on the table (raising the shares to 26) but didn't want to be too greedy either. The bankers get paid to line up supply and demand. They may be helped by being an oligopoly, but right now the market isn't set up to cut them out of the loop.

robterrell 13y ago
Help me understand why Facebook taking every dollar out of the market was a bad thing for them. I understand why Wall Street wasn't happy about it (since they expected a pop they could profit from & had to buy stock to fulfill their obligations... and why should taking a company public be an entirely risk-free profit opportunity anyway?) But, why was it bad for Facebook? Sure, their stock was below the IPO value for almost a year, but employees almost certainly had their options priced well below the IPO price, right? What other ways can a slightly lowered stock price hurt a company in the year after an IPO? Genuinely curious about this.
- jchrisa 13y ago
  I saw a few intelligent commentaries about this who agreed it was a great IPO for Facebook. The way I think about it, they floated it like a wet sponge, something you can only do if you are confident and taking the long view.
- encoderer 13y ago
  Not "certainly." We had an IPO where I work in 2012. People hired very recently before the IPO had a strike price near the offering price. Moreover, there is a mental dynamic when recruiting. A steadily appreciating stock is a helluva recruiting tool.
- prostoalex 13y ago
  You're correct in your understanding - the company maximized the price and ended up with a nice chunk of cash in its bank account. Internally someone starting the week of IPO might have received his stock grant at that week's price might not feel particularly upbeat when the stock price is later cut in half. There's always some churn and renegotiation going on at the companies whose stock price suffers significantly, and that makes it harder to concentrate on execution.
- mathattack 13y ago
  The backlash will come the next time Facebook tries to raise money. That said, the cost is much less than the amount of money that Twitter left on the table. Also - if every company flopped post-IPO, the IPO market would die. That's not Facebook's immediate problem, and again "doing the right thing" isn't worth leaving $20/share in the hands of flippers.
larrys 13y ago
"Google and Facebook each tried to stick it to the bankers in their own ways." This is a good example of a situation where you should stay close to what you know and stop thinking you can outsmart people who make a living a certain way everyday and know as much or more than your advisers. And definitely more than "you" (meaning the google guys) who made decisions based on things they read or what they were advised as opposed to having an actual seat of the pants feel for why something is done a certain way. And the pros and cons. There is a reason, you know, why people cooperate with the "mafia" and pay the vig and play the game. Is it right? No. But stick to what you know and stop thinking you can outsmart others out there who do something for a living and have established procedures and actually do add value in a system that essentially works. So others take their cut.
- ars_technician 13y ago
  mathattack is wrong though. Both Google and Facebook improved the amount of money the company got instead of lining the underwriter's pockets with that money.
  - mathattack 13y ago
    With all due respect (and I'm wrong a lot!) Google left quite a bit on the table. Their stock price went up 500% from $85 over the next year. Wouldn't they have been better off capturing some of that? The jury is still out on Facebook. Their IPO could hurt them getting money in the future, but maybe not. It's not the underwriters who get paid when stocks double, it is the people they allocate the stock to.
Amadou 13y ago
By creating a custom-IPO process, they saved on banker fees but wound up leaving an awful lot of money on the table. Could you elaborate? I thought the dutch auction was a good way to maximize google's share of the pot (by taking money away from well-connected people who received shares at the IPO price). Looking back at historical reports it only "popped" 17% ($100 from offering price of $85) compared to twitter's 73%.
- mathattack 13y ago
  The price went up ~5x from the $85 within the first year. One interpretation is that they had tons of good news. Another is that the initial investors didn't understand the value inside of Google, and perhaps the traditional road show would have helped. I view the bankers like real estate agents. Many are worthless, but a good real estate agent can raise the price you sell your house for much more than the 6% in fees they charge.

robterrell 13y ago

Help me understand why Facebook taking every dollar out of the market was a bad thing for them. I understand why Wall Street wasn't happy about it (since they expected a pop they could profit from & had to buy stock to fulfill their obligations... and why should taking a company public be an entirely risk-free profit opportunity anyway?) But, why was it bad for Facebook? Sure, their stock was below the IPO value for almost a year, but employees almost certainly had their options priced well below the IPO price, right? What other ways can a slightly lowered stock price hurt a company in the year after an IPO? Genuinely curious about this.

jchrisa 13y ago
I saw a few intelligent commentaries about this who agreed it was a great IPO for Facebook. The way I think about it, they floated it like a wet sponge, something you can only do if you are confident and taking the long view.
encoderer 13y ago
Not "certainly." We had an IPO where I work in 2012. People hired very recently before the IPO had a strike price near the offering price. Moreover, there is a mental dynamic when recruiting. A steadily appreciating stock is a helluva recruiting tool.
prostoalex 13y ago
You're correct in your understanding - the company maximized the price and ended up with a nice chunk of cash in its bank account. Internally someone starting the week of IPO might have received his stock grant at that week's price might not feel particularly upbeat when the stock price is later cut in half. There's always some churn and renegotiation going on at the companies whose stock price suffers significantly, and that makes it harder to concentrate on execution.
mathattack 13y ago
The backlash will come the next time Facebook tries to raise money. That said, the cost is much less than the amount of money that Twitter left on the table. Also - if every company flopped post-IPO, the IPO market would die. That's not Facebook's immediate problem, and again "doing the right thing" isn't worth leaving $20/share in the hands of flippers.

larrys 13y ago

"Google and Facebook each tried to stick it to the bankers in their own ways." This is a good example of a situation where you should stay close to what you know and stop thinking you can outsmart people who make a living a certain way everyday and know as much or more than your advisers. And definitely more than "you" (meaning the google guys) who made decisions based on things they read or what they were advised as opposed to having an actual seat of the pants feel for why something is done a certain way. And the pros and cons. There is a reason, you know, why people cooperate with the "mafia" and pay the vig and play the game. Is it right? No. But stick to what you know and stop thinking you can outsmart others out there who do something for a living and have established procedures and actually do add value in a system that essentially works. So others take their cut.

ars_technician 13y ago
mathattack is wrong though. Both Google and Facebook improved the amount of money the company got instead of lining the underwriter's pockets with that money.
- mathattack 13y ago
  With all due respect (and I'm wrong a lot!) Google left quite a bit on the table. Their stock price went up 500% from $85 over the next year. Wouldn't they have been better off capturing some of that? The jury is still out on Facebook. Their IPO could hurt them getting money in the future, but maybe not. It's not the underwriters who get paid when stocks double, it is the people they allocate the stock to.

Amadou 13y ago

By creating a custom-IPO process, they saved on banker fees but wound up leaving an awful lot of money on the table. Could you elaborate? I thought the dutch auction was a good way to maximize google's share of the pot (by taking money away from well-connected people who received shares at the IPO price). Looking back at historical reports it only "popped" 17% ($100 from offering price of $85) compared to twitter's 73%.

mathattack 13y ago
The price went up ~5x from the $85 within the first year. One interpretation is that they had tons of good news. Another is that the initial investors didn't understand the value inside of Google, and perhaps the traditional road show would have helped. I view the bankers like real estate agents. Many are worthless, but a good real estate agent can raise the price you sell your house for much more than the 6% in fees they charge.