Another strong argument in favor of doing a direct listing to determine market price (and raising privately beforehand if possible).
Anytime one party does a transaction repeatedly as their job and one party does a transaction once (maybe twice) in their life, the transaction will be structured to favor the first group (along with a compelling narrative/PR of why this is not the case).
Airbnb lost out here. It's easy to discount since people are happy to have made money, but I'm not sure this was a stunning IPO considering that. If I was on the company side, I'd be pissed at the initial pricing and the money that was left on the table.
The counter narrative is that pricing is hard and the banks try to do the best they can (with a slight preference for under pricing to benefit themselves). This is probably closer to the truth, but there's a lot of evidence that they're just not good at it.
It'd be interesting to see some clause that if the banks mis-priced by some X% the partners would have to sell and give 50% back to the company. Though I suspect even this wouldn't help because market price is hard to predict even if you're incentivized to try your best.
> If I was on the company side, I'd be pissed at the initial pricing and the money that was left on the table.
Eh, would you really though? I suppose maybe a maniacally focused founder or CEO might. But anyone in a position to be involved in these decisions has a huge personal stake in the situation. If I thought I was going to make $100M and instead I made $200M, it's hard to imagine being mad at the bankers for leaving the company's money on the table. But maybe that's why I'm not a big company executive.
But anyway, the flip side of a transaction that is incredibly important and you do only once, is that if you go against the norm and it goes badly, it could go very badly and you might not get a redo. If you go along with the experts, you are genuinely probably taking less risk.
Which is how it ends up structured to benefit the bankers.
People who only do something once or twice are more likely to defer to the 'experts', the only problem is the experts have their own incentives that are not directly aligned. The experts are also really good at selling since that's mostly their job so it makes it even harder to go against the grain.
I get why founders do it, but I think it's a mistake. Founders are also usually pretty good at first principles thinking and risk taking. DPO is also pretty solid ground now that a few companies have done it.
> "Eh, would you really though?"
Impossible to know, but I think so? After you're worth 5+ Billion it's more about money you can leverage via your company to grow and build. I think personal wealth has diminishing returns a bit before that point. Losing out on that much money for the company would irritate me.
There's a funny story (I searched briefly, but couldn't find) that when Elon took Tesla public via an IPO and the bankers told him the initial price he just said "no, at least $XX or no deal". I think the bank price was $17 and he said at least $19, but I could be off on the numbers. They did his price and that price was still too low.
Anytime one party does a transaction repeatedly as their job and one party does a transaction once (maybe twice) in their life, the transaction will be structured to favor the first group (along with a compelling narrative/PR of why this is not the case).
Airbnb lost out here. It's easy to discount since people are happy to have made money, but I'm not sure this was a stunning IPO considering that. If I was on the company side, I'd be pissed at the initial pricing and the money that was left on the table.
The counter narrative is that pricing is hard and the banks try to do the best they can (with a slight preference for under pricing to benefit themselves). This is probably closer to the truth, but there's a lot of evidence that they're just not good at it.
It'd be interesting to see some clause that if the banks mis-priced by some X% the partners would have to sell and give 50% back to the company. Though I suspect even this wouldn't help because market price is hard to predict even if you're incentivized to try your best.
https://podcasts.apple.com/us/podcast/bill-gurley-direct-lis...