CMV: There should be a regulation against money losing IPOs

Comcast ichiban
Apr 26 30 Comments

Tldr: Loss making IPOs - specially B2C - are a wealth transfer mechanism from the 99.99% to the 0.01% and YOU are an unwilling participant

Long version:
Zynga, Snap, Groupon, Gopro, Fitbit, Blue Apron.. All loss making unicorns that are currently trading below IPO price.

Let’s ask outselves: Who had anything to gain or lose?

VC - Big winner, multiples are always 1-2x. No one gets paid a cent before VCs get all their money back

I Banks - Win or lose, they will generate hype and price right for “the pop”

Founders - Bravo, well deserved

First 100 employees - 👍🏽 <— this is not meant as a thumbs up symbol

Retail investors - huge 👍🏽

Democratic socialists : Shouldn’t there be a regulation prohibiting such companies from going public? Literally two months ago only accredited investors were allowed to buy into lyft, and now any idiot can, while lyft’s balance sheet has almost remained the same. Makes no sense. Benjamin Graham is turning in his grave

Libertarians and Conservatives : You may ask why am I complaining? I have the perfect liberty to not invest in companies I don’t believe in. Right? Think again. If your 401k has VTTVX, VFORX, VFIFX or any of the target date funds, total market funds, YOU subsidized these loss making companies. YOU contributed to the 7 figure IB bonuses. When the hype dies down and tech PE ratios drop down to realistic levels, your 401ks will get 👍🏽

Those planning to throw counter-examples like AMZN in my face, AMZN is bit of an anomaly. They were reinvesting profits for growth instead of posting profits just before IPO, and no one other than daddy Bezos saw AWS going big. Most of the successful IPOs have been B2B: Okta, Twlo, zscaler

Sources:
https://jatins.gitlab.io/me/why-startup/
https://bit.ly/2UHvWJG

Have a great weekend everybody! 🍿

comments

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TOP 30 Comments
  • Palo Alto Networks KTkC88
    Good write up. I wish it were more widespread than just on this Mongolian fishing board.
    Apr 26 2
    • Comcast ichiban
      OP
      Thank you. Feel free to share on relevant forums/subreddits. No attribution necessary.
      Apr 26
    • Roku rhcp
      Mongolian?
      Apr 26
  • BluVector sparked
    I love people like you; you outline all of these potential problems that you have with the current system, but then can’t articulate any sort of solution to the perceived problem other than “we should have that discussion or we should look at changing laws”...

    Have you considered running for office? You’d fit right in.

    That being said you’re wrong. You always have the choice to not invest in these companies, your argument that you don’t isn’t an argument so much as it is a testament to people who are lazy. Also pointing out winners as anomalies is disingenuous. Also the market as a whole is made up of companies that all IPOd at some point and the general long term trend is positive, evaluating a handful of companies over a super short time horizon is not the appropriate way to evaluate stock market investments
    Apr 26 1
    • Comcast ichiban
      OP
      And I love a good debate. For much of the stock market history, loss making companies did not have >1Bn valuations and they certainly weren’t going public. SEC has not revised rules to this new reality.

      I don’t want to initiate a short position. I want a delta neutral position i.e no exposure

      Retirement providers are becoming less and less regulated by the day. The big ones cut exclusive deals with employers, charge higher commissions, and provide fewer investment options to choose from. My complaint is that when I buy VTI, I am forced to have an exposure to LYFT. And seeing as index funds own half the market, as a retail investor I have very little choice to “not invest” in companies with 💩balance sheets
      Apr 26
  • Google / Eng hooli.xyz
    “👍🏽 <— this is not meant as a thumbs up symbol”

    What does it mean instead?
    Apr 26 8
    • Google / Eng hooli.xyz
      Brown skin? Brown hair? Brown eyes?
      Apr 26
    • Brown bunghole
      Apr 26
    • Google / Eng hooli.xyz
      That’s weird. Mine isn’t brown.
      Apr 26
    • Comcast ichiban
      OP
      This is an extremely important side discussion. 👍🏽 bc its brown for everyone on the way out, thus symbolizing how politicians keep us busy discussing 👍🏻 vs 👍🏿
      Apr 26
    • Google / Eng hooli.xyz
      The “bung” is brown but the “hole” can be different shades. Mine is 👍🏻
      Apr 26
  • Oath / Mgmt Atinlay2
    That’s why IPO’s are risky!
    Apr 26 2
    • Comcast ichiban
      OP
      .. for the retail investors. Some people are guaranteed a win
      Apr 26
    • Oath / Mgmt Atinlay2
      If they believe that, the joke is on them
      Apr 26
  • Microsoft tfsUEwWt
    It's almost like you should be able to choose not to invest in them. We should make a law enforcing that.
    Apr 26 0
  • Oracle
    Ruttner

    Oracle

    PRE
    Stealth Worker
    BIO
    Control over your own life is an illusion.
    Ruttner more
    Lol “let’s make sure IPOs are guaranteed wins!!” 🤦‍♂️

    You clearly don’t understand Graham if you are dropping his name and IPOs in the same sentence.
    Apr 26 1
    • Comcast ichiban
      OP
      More like “let’s make sure institutional investors aren’t allowed to take profits from outrageously risky investments and dump the rest on unwilling, non-acredited retail investors”

      Unwilling is the key word
      Apr 26
  • Bloomberg / Eng
    Fork()

    Bloomberg Eng

    PRE
    Amazon
    Fork()more
    You also forgot to mention the impact of nation state level money laundering on valuations. Have to park that dirty money somewhere. Losing 50% and getting clean money out the other end is better than forever keeping it in limbo.
    Apr 27 0
  • Bloomberg / Eng
    Fork()

    Bloomberg Eng

    PRE
    Amazon
    Fork()more
    Can confirm this sentiment. I did my own light analysis over lunch and noticed that neither Google not Amazon had negative cash flow. Sure there was a paper loss on account of growth, but they almost never where hemmoraging cash. Amazon in particular spends like crazy the first 3 quarters and makes it up in Q4 as expected for a retail heavy business. Maybe Jeff has a point about FCF
    Apr 27 0
  • Twitter Oomnj
    It’ll be worst if the government intervenes. It’s up to the market at this point, if you think a B2C unicorn is doomed to fail and is trading on hype then short the stock
    Apr 26 2
    • Comcast ichiban
      OP
      Are you also against accrediated investor laws then? Why is it that only a certain class of high net worth, sophisticated investors are allowed to invest in risky pre-market securities? My argument is that LYFT is exactly like those securities. Those don’t constitute VTI, so neither should LYFT
      Apr 26
    • Twitter Oomnj
      Yeah I am of course
      Apr 26
  • If anyone had read The Intelligent Investor then you would know:
    IPO = I’m Probably Overpaying.

    During IPO the investors dump their shares onto the stupid (smart hands getting stupid money).
    Every financially literate person should know not to touch the stock for at least a year after IPO. Market will decide its value.
    Apr 26 1
    • Bloomberg / Eng
      Fork()

      Bloomberg Eng

      PRE
      Amazon
      Fork()more
      Very true. Investment banks bussines is dependent on this.
      Apr 27
  • Facebook Kasparov
    Investing is voluntary including the funds you are a part of, including if it is in your employment contract.
    Apr 26 0
  • New worlz
    And what do you do with previously profitable companies that started loosing money? De-list them?
    The stock market is not a safe place. It's big risk / big reward. Not happy with that? Put your money on savings accounts.
    Apr 26 0
  • eBay Yeah Bruh
    I'm a conservative and I think it's ok if the funds in my 401k invest in them. If they do get included in the funds at all in the first place, it's very likely a very small holding and you cannot discount the probability of success. AFAIK, no decent fund will take on a significant position with such companies.
    Apr 26 0