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The market doesn't care about your overpriced valuation (Failbook)

williamkasel.posterous.com

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Re: The market doesn't care about your overpriced valuation (Failbook)

#11

Post by wkasel »

wkasel wrote: post #7
goodcanadian wrote: post #5

My only comment is that if you can make an overpriced IPO, that is good for you. It is bad for the suckers who were dumb enough to buy in, but that is a different story. If the share price goes up quickly after an IPO, the price was too low. If the price goes down quickly, it was too high, but why should you care? If you want to pay me $1.50 to buy $1 bills, I will sell as many as you will take. The current market va…

Logical explanation, however the point of an IPO is not just liquidity in for your employees, but also to raise money for the company, and allow the public to buy in. If you don't price it so the price goes up, then you're doing everyone, even your shareholders a dis-service because they have a 180 day lockup period, so when the stock is at $15/share at the end of lockup, you actually screwed employees as well. The o…

Fair, but the only problem I see with your reasoning is stock grants were being issued as far back as 18 months ago at $25/share, which means that those employees DID lose money.

Re: The market doesn't care about your overpriced valuation (Failbook)

#12

Post by anewguy »

wkasel wrote: post #8
robbiep wrote: post #6

I feel like this article misses a number of points. Firstly, the modern IPO is chiefly about giving early investors and staff an exit ticket. It is therefore in their interests to price it as high as possible. The fact that there was significant hype around the business meant that they were able to achieve this valuation. The fact that this is distinct from the original aim of the sharemarket - that is, capitalising…

With all due respect, I completely disagree. If you understand the fundamentals of an IPO, as I explained below you would know that there is a 180 day lock-up period for employees, this means that employees haven't been able to sell their stock yet. When they do sell their stock it will be at $10/$15/share. The only folks who made money on the IPO were Merrill Lynch who SHORTED IT! You're typically supposed to IPO at…

Presumably the company has plans to invest the cash raised in the IPO to generate positive returns.

Re: The market doesn't care about your overpriced valuation (Failbook)

#13

Post by thebmax »

wkasel wrote: post #7
goodcanadian wrote: post #5

My only comment is that if you can make an overpriced IPO, that is good for you. It is bad for the suckers who were dumb enough to buy in, but that is a different story. If the share price goes up quickly after an IPO, the price was too low. If the price goes down quickly, it was too high, but why should you care? If you want to pay me $1.50 to buy $1 bills, I will sell as many as you will take. The current market va…

Logical explanation, however the point of an IPO is not just liquidity in for your employees, but also to raise money for the company, and allow the public to buy in. If you don't price it so the price goes up, then you're doing everyone, even your shareholders a dis-service because they have a 180 day lockup period, so when the stock is at $15/share at the end of lockup, you actually screwed employees as well. The o…

I believe that Peter Thiel, Accel Partners, and several other early investors sold a considerable part of their shares in the IPO.

That being said, I agree with your article and you make lots of good points!

Re: The market doesn't care about your overpriced valuation (Failbook)

#14

Post by wkasel »

thebmax wrote: post #13
wkasel wrote: post #7

Earlier quoted context omitted.

Logical explanation, however the point of an IPO is not just liquidity in for your employees, but also to raise money for the company, and allow the public to buy in. If you don't price it so the price goes up, then you're doing everyone, even your shareholders a dis-service because they have a 180 day lockup period, so when the stock is at $15/share at the end of lockup, you actually screwed employees as well. The o…

I believe that Peter Thiel, Accel Partners, and several other early investors sold a considerable part of their shares in the IPO. That being said, I agree with your article and you make lots of good points!

Yes, typically you have a negotiated rate, such as 5%, 10%, whatever. You're right I saw the s-1, but even then they still lost a lot, and the employees got screwed.

Re: The market doesn't care about your overpriced valuation (Failbook)

#15

Post by robryan »

wkasel wrote: post #11
wkasel wrote: post #7

Earlier quoted context omitted.

Logical explanation, however the point of an IPO is not just liquidity in for your employees, but also to raise money for the company, and allow the public to buy in. If you don't price it so the price goes up, then you're doing everyone, even your shareholders a dis-service because they have a 180 day lockup period, so when the stock is at $15/share at the end of lockup, you actually screwed employees as well. The o…

Fair, but the only problem I see with your reasoning is stock grants were being issued as far back as 18 months ago at $25/share, which means that those employees DID lose money.

That is the same though as investors buying in at $38. Employees could always choose to negotiate the grants or leave if they think they are bad value.

Re: The market doesn't care about your overpriced valuation (Failbook)

#16

Post by goodcanadian »

wkasel wrote: post #11
wkasel wrote: post #7

Earlier quoted context omitted.

Logical explanation, however the point of an IPO is not just liquidity in for your employees, but also to raise money for the company, and allow the public to buy in. If you don't price it so the price goes up, then you're doing everyone, even your shareholders a dis-service because they have a 180 day lockup period, so when the stock is at $15/share at the end of lockup, you actually screwed employees as well. The o…

Fair, but the only problem I see with your reasoning is stock grants were being issued as far back as 18 months ago at $25/share, which means that those employees DID lose money.

I don't know much about the FB employee stock plan. If they were given grants, the price doesn't matter. They gained shares of the company. If those shares were labeled $25 when they were in fact worth $15, they can't be said to have lost $10 because they actually netted stock worth $15. You might argue taxes as they would have to pay tax on the $25 income, but when they later sell, they can claim the $10 capital loss. Assuming they are in the same tax bracket, it is a wash.

If they were given options which the employees had to pay $25 to exercise, then yes, the employees lost money. However, they had the same opportunity to make the analysis that any other investor had. No one forced them to exercise their options, and those who did paid too much.

Re: The market doesn't care about your overpriced valuation (Failbook)

#18

Post by aniro »

robbiep wrote: post #6

I feel like this article misses a number of points. Firstly, the modern IPO is chiefly about giving early investors and staff an exit ticket. It is therefore in their interests to price it as high as possible. The fact that there was significant hype around the business meant that they were able to achieve this valuation. The fact that this is distinct from the original aim of the sharemarket - that is, capitalising…

In this case "extract maximum returns for the early investors" means that a whole lot of people got ripped off.

The notion that "the modern IPO is chiefly about giving early investors and staff an exit ticket" is a near perfect example of how "Silicon Valley, I hate to say it, has its head so far up its ass that it's eating its own bullshit."

The investors purchasing Facebook at IPO and after are not looking to reward early investors or hand some sweet exit to a founder.. they are looking for a return on their investment dollars.

If this is the prevailing attitude regarding the purpose of capital markets in Silicon Valley, I would be shocked if the IPO market for new tech stocks didn't shrivel up and die in the next (last?) few months.

How odd that there is an excellent article sharing the front page about American "Looterism" replacing American Capitalism.

Re: The market doesn't care about your overpriced valuation (Failbook)

#19

Post by wkasel »

robryan wrote: post #15
wkasel wrote: post #11

Earlier quoted context omitted.

Fair, but the only problem I see with your reasoning is stock grants were being issued as far back as 18 months ago at $25/share, which means that those employees DID lose money.

That is the same though as investors buying in at $38. Employees could always choose to negotiate the grants or leave if they think they are bad value.

The root of my argument though is that as Silicon Valley know-it-alls we assumed the world would gawk in awe of our amazing creation and throw money at us, which it did not. It's a shame you can't buy put's on that, because THAT would have been worth it. :)

Re: The market doesn't care about your overpriced valuation (Failbook)

#20

Post by epistasis »

wkasel wrote: post #8
robbiep wrote: post #6

I feel like this article misses a number of points. Firstly, the modern IPO is chiefly about giving early investors and staff an exit ticket. It is therefore in their interests to price it as high as possible. The fact that there was significant hype around the business meant that they were able to achieve this valuation. The fact that this is distinct from the original aim of the sharemarket - that is, capitalising…

With all due respect, I completely disagree. If you understand the fundamentals of an IPO, as I explained below you would know that there is a 180 day lock-up period for employees, this means that employees haven't been able to sell their stock yet. When they do sell their stock it will be at $10/$15/share. The only folks who made money on the IPO were Merrill Lynch who SHORTED IT! You're typically supposed to IPO at…

No, that's wrong, the only way an initial overvaluation hurts pre-IPO investors is if the stock gets delisted, or the market is so offended that it starts caring and undervalues the company. Otherwise, employees are just fine; Since the market doesn't care, it gives them fair value when they have a chance to sell. They lose out on cashing out during the over-valuation period, but that was just free money for those that pulled the strings, pre-IPO investors and Facebook management that could sell at IPO

The only people hurt by the initial overvaluation were the people that bought high. Everybody else wins or is neutral. Everybody. Again, unless the market starts caring about retribution and undervalues them. Otherwise everybody gets exactly what the market will give them.

The ibanks, Zuckerburg, and initial investors that sold on IPO day or shortly after, all win by a huge margin. They pulled the wool over lots of people's eyes; perhaps not intentionally, perhaps they honestly believed their own bullshit, but in any case their irrational exuberance hurt them not one bit.

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