PayPal founder and early LinkedIn and Facebook investor Peter Thiel agrees with our assessment:The Wall Street banks that took LinkedIn (LNKD) public drastically underpriced the IPO, screwing the company and its selling shareholders out of ~$200 million.
Here’s what Thiel told the Financial Times:
“Whenever a stock price goes up as much as it does with LinkedIn, you assume the IPO was mispriced and the bankers screwed up…There continues to be a certain antipathy by Wall Street banks toward Silicon Valley companies where they don’t quite believe it’s real.”
In the wake of the LinkedIn mispricing, a recognition that IPO pops are bad, not good, appears to be spreading.
And just in time!
As the IPO market heats up, more and more companies are lining up to go public. Instead of buying Wall Street’s story that an IPO is a “pricing event, not a fundraising event,” they should hold their bankers’ feet to the fire and insist that they price the deals fairly.
Any IPO “pop” more than the standard 15%-20% is a gift to huge institutional investors at the expense of the company and selling shareholders. Wall Street has lots of stories about why this gift is necessary and even desirable, but they are just self-serving rationalizations. A 15%-20% IPO discount is plenty to bring quality institutions to the table and incent them to take a chance on IPOs. Selling stock at a price below that is just throwing money away.