Here we go again. LinkedIn’s massive share price spike is going to cause recriminations. Such as: if the company is really worth more than $100 a share, why did the underwriters leave $400m on the table?
An eye-catching event like this stirs up old memories. In the days of the Dot-com boom, this is the sort of question that drove a wedge between Wall Street and Silicon Valley.
Back then, tech types thought that bankers were pricing IPOs too cheaply in order to hand easy profits to favoured clients. The banks claimed that the early gains when stocks started trading were irrelevant, and it was important to price them at realistic levels to prevent early buyers from being burnt in a subsequent sell-off.
Google tried to set things right with an auction-style IPO to match supply and demand more closely. But Wall Street’s lock on the process is as strong as ever.
Based on the early action in the LinkedIn stock, the underwriters could easily have priced it at $70 or even $80 rather than $45, says Ryan Jacob, an internet fund manager in California (he says he didn’t buy the stock.)
To put it in perspective: $400m is four times the total amount that LinkedIn raised to get through its first eight years as a private company. That sort of money will certainly focus the mind for IPOs to come – and should bring greater use of the auction approach.
