3 ms·
My suspicion is that this is currently more art than science; the banks/IPO underwriters want the stock to pop, aside from even the guaranteed floor you mentio
by JonFish85 11y ago
My suspicion is that this is currently more art than science; the banks/IPO underwriters want the stock to pop, aside from even the guaranteed floor you mentioned. They want the psychological effect that comes with that "pop", that shows up on potential investors' radar.
On top of that, I imagine it's a little tricky because an IPO is when the early investors cash out, so they're the largest stake-holders in the company, and creating that "pop" in the hope that people buy-buy-buy to drive up the price creates a good return for those investors/stakeholders. I don't like it, since it can essentially screw the company out of cash, but that's my guess as to why such a thing exists.
On the other hand, a decent number of companies going public these days are going to screw over the investors anyhow (cough Zynga, GoDaddy, King), so if that means they get slightly less cash in the bank, I guess I don't really care.
- deleted 11y ago[deleted]
- ewang1 11y agoI believe the early investors can't completely cash out since they're probably subject to a lock up period on the majority of their holdings.
- JonFish85 11y agoI know employees & officers in the company are, but are the investors, as well (honest question)?
- manyhats 11y agoYes, it's very uncommon (but not unheard of) to have large blocks of stock that aren't locked up in an IPO. For SHOP specifically, 99.9% of the Class B stock (i.e., stock outstanding pre-IPO) is locked up for 180 days. (See underwriting section of the prospectus) http://www.sec.gov/Archives/edgar/data/1594805/000119312515195802/d925168d424b4.htm#rom863202_21 http://www.sec.gov/Archives/edgar/data/1594805/0001193125151...
- mbesto 11y ago> I don't like it, since it can essentially screw the company out of cash, I'm not saying you're one of these people, but there's a general meme of non-financial people who don't understand that justifications for raising capital can indeed be to liquidate investors (or founders) positions in companies. This is very normal. Investors should know (I believe they're legally obligated) what their capital is being used for. If they don't believe their capital will increase the value of the business, then they simply wouldn't invest. The market should correct itself in this case (if not leaving enough cash in the company is a problem).