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 firms to create new ventures (Think infrastructure - the golden age of rail, factories, etc) is an interesting side-note.<p>Secondly, the marketplace often operates on the stupidity of the masses. Intelligent fund managers stay away from overpriced IPOs, the uninformed masses pile in because they hear the hype and are not value investors so don't know/care that the revenues aren't behind the company.<p>3- A successful IPO is one that is fully capitalised and gives the company new cash.
It is not one that goes through the roof. This would represent a failure of the Merchant Bank to properly capitalise on the company's value (They could have charged a higher value for the IPO as that would have better represented the fair value of the company)
- in fact, in a perfectly valued company it should track mostly flat as the investor return is priced into the dividend + some accumulation of value.<p>The Facebook float, and the Zynga float, and numerous others, thus represents a good example of management and investment banks fully capitalising on the hype surrounding them to extract maximum returns for the early investors.
The fact that this screws later investors is secondary.
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 valuation only really matters when you want to trade. Otherwise, worrying about your stock price is a bit of a pissing contest. BTW, I did not buy Facebook or Zynga. They were both pretty obviously over-hyped and overpriced (it seems most IPOs in most industries are), but the stock holders prior to the IPO made out like bandits during the IPO.
Blodget made some good points:<p><a href="http://www.businessinsider.com/facebook-lockup-release-2012-8" rel="nofollow">http://www.businessinsider.com/facebook-lockup-release-2012-...</a><p>You want a high IPO price, but not so high that you can't meet expectations and disappoint. Get tagged as an underperformer and it makes it hard to do future stock acquisitions, financings, hires.
Wow.. to the top level commenters who rationalize the merits of the Facebook IPO as successful in extracting the maximum amount of money for investors and employees.. this is the type of logic that warrants the criticisms thrown at Silicon Valley.<p>Not withstanding the fact that the redistribution of wealth was based on 'hype' and just a douchy move, does no one seem to understand that the IPO market will inexorably implode yet again through such self-serving actions, thereby closing future IPO opportunities for companies with real revenues and growth?
This is a stupid argument. The character "flaws" the author cites are basically why much of the technological progress of the past several decades originated in Silicon Valley.