The IPO is Broken and Dead …Long Live the IPO…and Shake Shack is Bigger than Coal Industry

Nothing is broken.

Fear and greed is at work as it always is.

Yes, the regulations have swung too far into the costly mode.

Yes, technology companies are going public later.

Yes, there are a slew of broken technology IPO’s.

Yes, it will get worse before it gets better.

But, IPO’s will never die.

The latest meme amongst the VC’s, tech ‘journalists’, and founders is about the ‘bubble’, when it will end and why.

Farhoo at the WSJ is ground zero of latest with this piece. It’s not interesting to me but it set Fred Wilson off to write this piece in which he reminds everyone that Wall Street is not fully stupid, just mostly stupid. Obviously I must stop now and insert this clip from ‘The Princess Bride’ to offer my thoughts on the IPO market:

Absent from these discussions as always – are the banks themselves. They get paid, they sell. They don’t have time to think or ‘feel’.

On Stocktwits, one chart sums up the current broken state of the technology market. Here is a chart of Grubhub since their IPO overlaid against insider sales.

Apparently $GRUB founders, top management and early backers also had zero confidence in analyst fantasy estimates…

— Jean Fonteneau (@JFinDallas) Jul. 2 at 12:15 PM

$ETSY is wetsy and $LC (Lending Club) needs someone to loan them some shareholders willing to buy the stock.

Greed has had it’s day…and week… and month in technology. The IPO’s are just way too late in the company growth lifecycle and insiders are either too rich from private sales or licking their chops to get out at juiced up valuations.

If Facebook had not acquired Instagram and Whatsapp the stock would be a teenager. That’s not organic growth, that’s a ballsy bet it all CEO who got it right.

The greed seems to be tipping as we speak…

Some fear is good. It makes smart people rethink things. It makes scorned investors move to other sectors for opportunity.

The last year it was hamburgers…

I don’t think Shake Shack shareholders would say the IPO market is broken…yet.

Today Shake Shack is bigger than the whole Coal Industry.

@chicagosean @rossmorgan We had to see it on chart form to believe it – stunning.

— StockTwits (@StockTwits) Jul. 1 at 08:16 AM

Interestingly enough, there are more chemicals in their burgers and shakes than what it takes to burn coal for energy.

As Fred says and I agree, the public are not ‘unwashed masses’. In my opinion, IPO’s are not broken. The sophisticated investors are just voting by selling the losers.


  1. Sidney says:

    Great post. What is the endgame you see for private companies like Uber and Dropbox? Their exit clock must be ticking, but ..

  2. JFinDallas says:

    IPOs can offer incredible trading and investing opportunities at times, but learning how to pick the right ones and trade them is required, peoples that don’t want to do the work will always get burned.

    There is a cycle for IPOs, they are great potential long term investments at the bottom of the cycle as the bar to come public is very high and demand for risk is low, as a result only quality companies priced with a sizable discount can come public, but as you move along the curve toward the top of the cycle IPO prices rise as bankers keep pricing each deal higher than the last, while quality declines as the bar to come public gets lowered (AXON anyone?…), in general toward the top of the cycle IPOs as a group offer poor investment opportunities.
    I will let you guess what stage of the cycle we are in…

    Anyway, IPOs have always been a risky area with a large attrition rate, I think average Mom & Pop investors should stear clear from it altogether (Does it make a big difference in your long term returns if you bought MA, GOOG or CMG on day 1 of the IPO or 1 year in? No not really…)
    That being said IPOs are great trading vehicle because of the hype that surrounds them, the unbalanced supply demand equation and the lack of price history/anchoring that let people take price further than it should on the back of the promises of the “story”.

    The IPO is dead for some over hyped big tech Silicon Valley startup that we all obsess about (because going public is real hassle, valuations are higher in the private market and who really wants to do conference calls every quarter with 20 something Wall Street analysts that explain to you how you should run your business while they never held an executive job, shoot me…), but other than that there were 14 IPOs the week before last, so for the mere regular companies (of the non magical unicorn variety) the IPO is alive and well…
    (and I think IPO activity will remain very high Q3 and Q4 if markets hold.)

    But for people that think of IPOs as automatic guaranteed money machine or great investments, IPOs are going to be dead or rather their portfolio will be as it gets littered with the next FUEL, CSLT, ZU, COUP, ETSY or NDLS…

Comments are closed.