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2019 Tech IPO Winners and Losers – Part Two

Negative “pops”: overall, despite short-term gains for investors, issuers got the better of the pricing process

Venture capitalists love to complain that IPO issuers “leave money on the table” when an IPO “pops” at the open. The pop quantifies the institutional discount IPO investors receive for their risk in establishing the correct trading price of shares that have never traded in a liquid market before. As we saw in 2019, this risk is very real – and investors weren’t paid properly for it.

2019 Tech IPOs – Increase / Decrease in Value of Shares Sold

This “pop” is one of the major supporting arguments for direct listings. Never mind that 2019 tech IPOs on average represented only 10% of the issuers’ shares (more on that in the next installment) and the 90% of a company’s shares not sold in an IPO takes the ride north on an opening pop.

But how do direct listing advocates feel about negative pops, as we saw with not only Uber but also Peloton, Douyu, and Ruhnn?

Even though the aggregate day-one gains for tech IPOs in 2019 were $3.8 billion, that number had flipped to a loss of $1.7 billion by year end, against aggregate issuance of $20.8 billion.

So IPOs in aggregate dollars were up 18% at the end of day one, but down 8% as we close out the year. Meaning IPO issuers in aggregate were overpaid by $1.7 billion for the shares they sold. And IPO investors received a negative institutional discount on about half of the dollar issuance right on day one, and all of it by year end.

But let’s keep whining about the pop, and banker fees (also more on this to come) to bolster the case for direct listings…

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