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My experiences through GrubHub's IPO from start to finish

mevans314.com

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Re: My experiences through GrubHub's IPO from start to finish

#11

Post by yellowstuff »

jackgavigan wrote: post #7

It's a pity he doesn't talk about how the stock was priced. GrubHub closed up 31% the day it IPO'd, which means that they left $59.2m on the table.

I don't know about GrubHub in particular, but it is normal to see first day IPO returns of 20% or more. The main reason is monopsony- there are a limited number of institutions that can make significant investments in new IPOs, and they demand a discounted price. Another factor is that there are just a few bulge bracket investment banks to facilitate large IPOs. Their loyalties are more with the repeat players that buy IPOs than the smaller players that sell them.

Note that the founders who sell into an IPO tend to hold onto a lot more stock than they sell, so they're not solely concerned with getting the best price at the IPO. Do you think when FB cratered after the IPO Mark Zuckerberg was smiling because he got a great price for the shares he sold?

Even Google wasn't smart or powerful enough to beat the system. They tried to do an auction instead of a regular IPO, but at the last minute large investors threatened to pull out, so Google IPOed at $85 and popped 17%.

Re: My experiences through GrubHub's IPO from start to finish

#12

Post by melvinmt »

chollida1 wrote: post #9
psuter wrote: post #6

Very interesting and educational read. Even if you know a little bit about how IPOs work, reading through the complete timeline helps understand the roles and the steps involved. One question that came after reading: The underwriter won’t move forward unless they get a very high percentage (99-100%) of employees/shareholders to sign a lock-up. What are the incentives for employees to sign such an agreement? It sounds…

I'll start by saying I'm not surprised employees get the shaft as I've spent countless hours analyzing the IPO process looking for trading advantages and I still don't fully understand it:( Quite often the choice of a lockup is out of the companies hands, many states require it. The SEC however doesn't require a lock up, they just recommend it. http://www.sec.gov/answers/lockup.htm http://www.sec.gov/answers/bluesky.…

Is it insider knowledge if the company is not public yet?

Re: My experiences through GrubHub's IPO from start to finish

#13

Post by saileshr »

yellowstuff wrote: post #11
jackgavigan wrote: post #7

It's a pity he doesn't talk about how the stock was priced. GrubHub closed up 31% the day it IPO'd, which means that they left $59.2m on the table.

I don't know about GrubHub in particular, but it is normal to see first day IPO returns of 20% or more. The main reason is monopsony- there are a limited number of institutions that can make significant investments in new IPOs, and they demand a discounted price. Another factor is that there are just a few bulge bracket investment banks to facilitate large IPOs. Their loyalties are more with the repeat players that b…

Would like to understand this better: If you have such a well known brand name like Google or Facebook, why not manage a direct sale to the public via auction and cut out these institutional investors? Even if these institutions threaten to pull out, isnt there enough capital in the markets to absorb a $1B IPO?

Re: My experiences through GrubHub's IPO from start to finish

#14

Post by ShellfishMeme »

I'd be interested in experiences with what IPO means for internal processes, especially in the software engineering parts of the company.

Any more supervision? Did the way development and deployments work change? I can imagine when you're publicly traded the higher ups might suddenly care much more about being on the safe side of things and try to enforce stricter rules.

Re: My experiences through GrubHub's IPO from start to finish

#15

Post by patja »

ShellfishMeme wrote: post #14

I'd be interested in experiences with what IPO means for internal processes, especially in the software engineering parts of the company. Any more supervision? Did the way development and deployments work change? I can imagine when you're publicly traded the higher ups might suddenly care much more about being on the safe side of things and try to enforce stricter rules.

Sarbanes-Oxley compliance alone will have significant impacts on development and operations processes.

Re: My experiences through GrubHub's IPO from start to finish

#16

Post by ProAm »

ShellfishMeme wrote: post #14

I'd be interested in experiences with what IPO means for internal processes, especially in the software engineering parts of the company. Any more supervision? Did the way development and deployments work change? I can imagine when you're publicly traded the higher ups might suddenly care much more about being on the safe side of things and try to enforce stricter rules.

All aspects of auditing get much worse/tedious.

Re: My experiences through GrubHub's IPO from start to finish

#17

Post by spacehome »

yellowstuff wrote: post #11
jackgavigan wrote: post #7

It's a pity he doesn't talk about how the stock was priced. GrubHub closed up 31% the day it IPO'd, which means that they left $59.2m on the table.

I don't know about GrubHub in particular, but it is normal to see first day IPO returns of 20% or more. The main reason is monopsony- there are a limited number of institutions that can make significant investments in new IPOs, and they demand a discounted price. Another factor is that there are just a few bulge bracket investment banks to facilitate large IPOs. Their loyalties are more with the repeat players that b…

> Do you think when FB cratered after the IPO Mark Zuckerberg was smiling because he got a great price for the shares he sold?

Yes, as a matter of fact, that's exactly what I think, and I don't blame him a bit or even think that's a bad thing at all.

You're framing it as the alternative being that the stock price is the same on the first day and doesn't crater. The actual alternative is that Mark sells his shares for the depressed price.

Re: My experiences through GrubHub's IPO from start to finish

#18

Post by yellowstuff »

saileshr wrote: post #13
yellowstuff wrote: post #11

Earlier quoted context omitted.

I don't know about GrubHub in particular, but it is normal to see first day IPO returns of 20% or more. The main reason is monopsony- there are a limited number of institutions that can make significant investments in new IPOs, and they demand a discounted price. Another factor is that there are just a few bulge bracket investment banks to facilitate large IPOs. Their loyalties are more with the repeat players that b…

Would like to understand this better: If you have such a well known brand name like Google or Facebook, why not manage a direct sale to the public via auction and cut out these institutional investors? Even if these institutions threaten to pull out, isnt there enough capital in the markets to absorb a $1B IPO?

Google tried exactly that, letting people bid for as few as 5 shares. It didn't work.

A company like GrubHub, with much less name recognition than Google, is much more reliant on a bank helping to market their IPO, and in a worse position to try an auction.

Re: My experiences through GrubHub's IPO from start to finish

#19

Post by unreal37 »

saileshr wrote: post #13
yellowstuff wrote: post #11

Earlier quoted context omitted.

I don't know about GrubHub in particular, but it is normal to see first day IPO returns of 20% or more. The main reason is monopsony- there are a limited number of institutions that can make significant investments in new IPOs, and they demand a discounted price. Another factor is that there are just a few bulge bracket investment banks to facilitate large IPOs. Their loyalties are more with the repeat players that b…

Would like to understand this better: If you have such a well known brand name like Google or Facebook, why not manage a direct sale to the public via auction and cut out these institutional investors? Even if these institutions threaten to pull out, isnt there enough capital in the markets to absorb a $1B IPO?

I would suggest that any time you try to cut out significant profit out of an established system, you've got the whole system working against you.

Sure, it can be done. But everything will be more difficult. And you'll have to do a lot more of that work yourself. And potentially mess it up. And potentially be sued when things go bad. The $ savings just turn into $ risk.

Re: My experiences through GrubHub's IPO from start to finish

#20

Post by nemo44x »

If your company goes public and you have valuable equity but face a lockup of 6 months you can still "lock in" some price...if your company gets publicly traded options that is.

Sell calls at the price you want to sell for the month that the lockup expires. If your shares get called away you got the price you wanted and some premium. However, you miss out on a huge gain if it goes far beyond your call level. Also, if the stock tanks in that time you keep your now less valuable shares but you got some premium.

So, after selling calls you can take that money you made from the premium and buy puts with it at around the same price. You've created a spread here and have locked in a selling price and gave yourself some downside insurance - all for very little cost to you over all since the covered call premium paid for most, if not all of your puts. Your only risk now is that the stock goes through the roof and you miss out on some upside - but that makes sense as you've eliminated risk for very little out of pocket cost. So maybe you do this on 1/2 or 2/3 of your position or whatever you're comfortable with.

Of course the difficulty is if you have a ton of stock and the option market for your company isn't very large and therefore illiquid.

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