Gavin Baker+ Your Authors @GavinSBaker Husband, Becky Painter. CIO, Atreides Management. Former PM, Fidelity OTC fund. No investment advice, views all my own. Apr. 20, 2019 1 min read + Your Authors

1) Some thoughts around IPOs. Would be interesting to approximate how much incremental dilution $LYFT breaking the IPO deal price created for $PD, $ZM and $PINS. Investment banks generally try to engineer especially large first day moves after a broken IPO.

2) And given the amount of supply that is coming to market - $UBER, Slack – it was especially important for bankers to condition IPO buyers that they would make money and the deal price would not be at risk after $LYFT. Mission accomplished.

3) The first day IPO move is intended to compensate public equity investors for the risk they are taking in buying a company with which they have no history or context and incentivizes them to do the necessary work to get conviction.

4) And breaking deal price – whether on an IPO or a secondary - creates a stigma that can persist for a strangely long time. I personally never cared about this – but I know many brilliant, well regarded investors who do.

5) This dynamic – along with a lack of liquidity – is why there is no true market price for most IPOs until the lockup expiry.

Sidenote - hopefully $LYFT recovers quickly. They built something great and helped changed the world along with $UBER.

6) These IPO dynamics are often seen by VCs and startups as unfair. I’m not opining on fairness – although from my perspective they don't seem anymore unfair than the way liquidation preferences stack up over time. At least everyone is in the same boat post IPO.

7) Also -many startups focus intensely on the IPO when this is a semi-irrelevant event that is stage managed by investment bankers. Much more important to focus on the lockup expiry. i.e. Save the big quarterly upside for after the lockup, not the quarter after the IPO.

8) And all this is why it is important to have the best possible bankers.

BTW, my understanding is that $LYFT and their bankers (who were excellent – well executed S-1, roadshow) sincerely believed it would sustainably trade over $90. Investing is hard. Everyone makes mistakes.

You can follow @GavinSBaker.


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