My experiences through GrubHub's IPO from start to finish • Hacker News Board

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

#31

Post by timr » Mon, Feb 09, 2015, 9:02 PM UTC

nemo44x wrote: post #29

m_evans wrote: post #27

Earlier quoted context omitted.

This is typically not the case. The lock-up specifically prohibits trading options, pledging shares as collateral for debt, selling shares, or gifting shares to charities. It also usually a catch all for benefiting directly or indirectly (through a trust or foundation) Source: I founded GrubHub and wrote the article referenced here.

Thanks for information - I wasn't aware this applied to non-insiders or ex-employees too for derivatives that expire after the lock-up. I guess no amount of financial engineering can unscrew the little guy. :) BTW, love your company and use it often, thank you!

This was my experience, as well: my lock-up contract explicitly forbade trading in any company security, derivative, etc.

I don't know how they'd enforce this, however. Seems like you'd have to have a big mouth, and they'd have to be willing to fire you for it.

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

#32

Post by jackgavigan » Mon, Feb 09, 2015, 9:31 PM UTC

bokonist wrote: post #28

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.

That is not the correct way to think about it. Say that the initial offering is for 10 million shares at $20 a share. Then the price pops to $30. That $30 share price is based on a much smaller net influx of investment. It does not follow that you could have sold 10 million of shares at that price. The $20 price is a discount that is needed to make the market clear a very large number of shares, all at once. Furtherm…

> ..retail investors know that the institutions buying into the IPO are reputable, long-haul investors like Fidelity, who will not be dumping the stock immediately.

From the article: "The first trade was 15% of all of the shares offered during the pricing."

Institutional investors "consistently flip a much larger percentage of the shares allocated to them than do retail customers."[1]

1: http://faculty.msb.edu/aggarwal/jfeflipping.pdf

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

#33

Post by caseysoftware » Mon, Feb 09, 2015, 10:40 PM UTC

m_evans wrote: post #27

nemo44x wrote: post #20

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…

This is typically not the case. The lock-up specifically prohibits trading options, pledging shares as collateral for debt, selling shares, or gifting shares to charities. It also usually a catch all for benefiting directly or indirectly (through a trust or foundation) Source: I founded GrubHub and wrote the article referenced here.

Thanks for the article. It's really fantastic and eye-opening on the process, how things happen, and who's involved at each stage.

I've been watching a couple companies closely to figure out when/if they're going to go and now I have a better sense of the process.

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

#34

Post by joezydeco » Mon, Feb 09, 2015, 11:03 PM UTC

jackgavigan wrote: post #32

bokonist wrote: post #28

Earlier quoted context omitted.

That is not the correct way to think about it. Say that the initial offering is for 10 million shares at $20 a share. Then the price pops to $30. That $30 share price is based on a much smaller net influx of investment. It does not follow that you could have sold 10 million of shares at that price. The $20 price is a discount that is needed to make the market clear a very large number of shares, all at once. Furtherm…

> ..retail investors know that the institutions buying into the IPO are reputable, long-haul investors like Fidelity, who will not be dumping the stock immediately. From the article: "The first trade was 15% of all of the shares offered during the pricing." Institutional investors "consistently flip a much larger percentage of the shares allocated to them than do retail customers."[1] 1: http://faculty.msb.edu/aggarw…

Facebook didn't leave money on the table, and there were cries that the IPO was a disaster. Wonder why that was.

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

#35

Post by serve_yay » Mon, Feb 09, 2015, 11:56 PM UTC

joezydeco wrote: post #34

jackgavigan wrote: post #32

Earlier quoted context omitted.

> ..retail investors know that the institutions buying into the IPO are reputable, long-haul investors like Fidelity, who will not be dumping the stock immediately. From the article: "The first trade was 15% of all of the shares offered during the pricing." Institutional investors "consistently flip a much larger percentage of the shares allocated to them than do retail customers."[1] 1: http://faculty.msb.edu/aggarw…

Facebook didn't leave money on the table, and there were cries that the IPO was a disaster. Wonder why that was.

Yeah, there were people screaming bloody murder in the news at the time, but to me it seemed like they were the rare ones who did it correctly. Unless your idea of "doing it correctly" is a wealth transfer to institutional investors.

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

#36

Post by prostoalex » Tue, Feb 10, 2015, 12:56 AM UTC

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?

There's the overhead cost of working with the various brokerages, and then the marketing cost. Even when Google was a household name, the news of their IPO apparently did not reach enough interested investors to make it interesting.

http://www.washingtonpost.com/wp-dyn/articles/A10478-2004Aug...

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

#37

Post by prostoalex » Tue, Feb 10, 2015, 1:04 AM UTC

timr wrote: post #31

nemo44x wrote: post #29

Earlier quoted context omitted.

Thanks for information - I wasn't aware this applied to non-insiders or ex-employees too for derivatives that expire after the lock-up. I guess no amount of financial engineering can unscrew the little guy. :) BTW, love your company and use it often, thank you!

This was my experience, as well: my lock-up contract explicitly forbade trading in any company security, derivative, etc. I don't know how they'd enforce this, however. Seems like you'd have to have a big mouth, and they'd have to be willing to fire you for it.

They don't enforce it pre-emptively, but can hit you with a case many years after if the amounts involved are worthwhile of investigator's attention.

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

#38

Post by mikeyouse » Tue, Feb 10, 2015, 2:31 AM UTC

joezydeco wrote: post #34

jackgavigan wrote: post #32

Earlier quoted context omitted.

> ..retail investors know that the institutions buying into the IPO are reputable, long-haul investors like Fidelity, who will not be dumping the stock immediately. From the article: "The first trade was 15% of all of the shares offered during the pricing." Institutional investors "consistently flip a much larger percentage of the shares allocated to them than do retail customers."[1] 1: http://faculty.msb.edu/aggarw…

Facebook didn't leave money on the table, and there were cries that the IPO was a disaster. Wonder why that was.

In addition to the NASDAQ breaking the morning of the IPO, I think most of the disappointment lies with the stock falling by ~20% within a week of the IPO. Facebook both dramatically increased the number of shares available and the price at which their IPO shares were offered, and then fell completely flat out of the gate.

I definitely side with the companies more than investment banks in this scenario, and if you assume it was priced $5 too high, FB saw an extra $2.1B from setting the price 'too high'. Given that their price has doubled since then, I think most investors have forgiven them for their sins.

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

#39

Post by timr » Tue, Feb 10, 2015, 4:35 AM UTC

prostoalex wrote: post #37

timr wrote: post #31

Earlier quoted context omitted.

This was my experience, as well: my lock-up contract explicitly forbade trading in any company security, derivative, etc. I don't know how they'd enforce this, however. Seems like you'd have to have a big mouth, and they'd have to be willing to fire you for it.

They don't enforce it pre-emptively, but can hit you with a case many years after if the amounts involved are worthwhile of investigator's attention.

Unless the lockup restriction is part of your state's laws (it isn't in California, AFAIK), it's not a matter for an "investigator" -- it's a private contract between yourself and your company.

It does vary state by state, though, so I suppose it's possible that some states have laws that prevent you from trading in derivatives during a lockup period.

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

#40

Post by ilamont » Tue, Feb 10, 2015, 4:42 AM UTC

If everything goes perfectly and the company has created a lot of buzz and momentum, there is interest to buy at a price above what has been printed on the S-1. As the pricing approaches, the company responds to this interest by increasing the price. Then the investors respond to the new price. This cycle repeats two to three times as the date approaches.

So, the price was not based on fundamentals of the business, but rather buzz, hype, and tactics like restricting the number of shares. The common stock price has since risen but it's now running a P/E ratio of 135 (1).

Who is getting the short end of the stick when reality kicks in? Mom and pop investors? Mutual funds and pensions?

Also, what's with the "bootstrap" banner at the top of the page? Grubhub took $84 million in funding (2).

1. http://research.investors.com/quotes/nyse-grubhub-inc-grub.h...

2. https://www.crunchbase.com/organization/grubhub