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2019 Tech IPO Winners and Losers – Part Four

Other ways to look at winning and losing

It’s all about money. Issuers want capital at reasonable prices, private investors want liquidity on favorable terms, and public investors want the best aggregate dollar returns.

This means, from an IPO investor’s perspective, that two hugely-important – but rarely discussed in deal coverage – factors are 1) the size of the deal and 2) the competition for allocations.

Tech IPOs – By IPO Size

As the table above shows, the smallest deal of the year (Fangdd) was $78 million, while Uber was $8.1 billion – or a spread of more than 100x. Mean transaction size was $800 million and median was $305 million. Interestingly the largest and also the smallest deals of the year (one of them hotly anticipated and the other practically invisible) were down on their first days of trading.

Underwriters often leak to the press, but never actually disclose, the “coverage” of the book as an IPO heads toward pricing. When underwriters say the book is “twenty times covered” sometimes they are bluffing, but sometimes not.

Which means that even veteran IPO buyers come up against brutal and surprising share allocation dynamics on hot deals, and it’s very possible to make fabulous percentage gains on a tiny number of shares – and vice versa.

IPOs also present investment opportunities in the aftermarket, not just at the issue price. And on the short side as well as the long.

Hence there are many ways to win, and lose: