Tag Archives: IPO

The Post-IPO Dilemma: Hedging Your Stock

If your company recently went public and your stock price has gone up significantly then you’re probably wondering how you can hedge your position. Unfortunately there’s nothing you can do while you’re still in the 180-day lock-up period. Most lockup agreements have extremely detailed restrictions included, designed to prevent almost any form of market participation with a security.  It’s too long to reproduce anything but a sample here, but it typically begins like this: In consideration of the Underwriters’ agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of each of [names of managing underwriters], […]

The 14 Crucial Questions About Stock Options

Ask These 12 Questions About Your Options

In April 2012 I wrote a blog post titled The 12 Crucial Questions About Stock Options. It was meant to be a comprehensive list of option-related questions you need to ask when you receive an offer to join a private company. Based on the outstanding feedback I received from our readers on this and subsequent posts about options, I’m now expanding the original post a bit. I’ve done just a little updating and posed two new questions – hence the slight title change: The 14 Crucial Questions About Stock Options. Next time someone offers you 100,000 options to join their company, don’t get too excited. Over my 30-year career in Silicon Valley, I’ve watched many employees fall into the trap […]

IPO 101 Series: What Happens to Employees After the Big Day?

Ask These 12 Questions About Your Options

In our previous posts, we’ve covered why companies go public, and how the IPO process works.  In this post, we jump to the first day of trading to understand how IPOs affect employees. IPO Day: Trading Begins Shares are typically priced at a 10% to 15% discount from the price at which the bankers expect the shares to ultimately trade at the end of the first day.  The discount is offered to compensate investors for taking the risk of buying shares in a company that has no trading history. While most offerings close the first day at the expected premium to the offering price, a reasonable percentage do not. Companies need to observe a quiet period from date of filing […]

IPO 101 Series: How Do Companies Go Public

when to sell post ipo

Very few companies ever reach the size and scale necessary to successfully go public. Companies need to be rather sizable before they can attract investment bankers to underwrite their offerings. The term underwriting is actually a remnant of the past.  Years ago investment bankers would create a syndicate to guarantee the raising of a certain amount of capital at a specified price when a company chose to go public.  Today bankers pursue IPOs on a “best efforts” basis, which means they are not contractually obligated to provide the capital, but the term underwriting is still used for the raising of public capital.  Underwriting: How Investment Bankers Make Money This might come as a shock to some uninitiated readers, but most […]

IPO 101 Series: Why Do Companies Go Public

When news of a widely anticipated IPO breaks, it triggers an avalanche of press coverage. Surprisingly, almost none of that coverage explains the rationale behind the company going public in the first place. There are four major reasons to take a company public: Maximize shareholder value Raise money at more attractive rates Create an acquisition currency Increase company awareness. Maximize shareholder value: If a company’s management believes it serves a large market and has a strong competitive position then it’s likely to generate more value for its shareholders by going public than through a sale to another company. That’s because future success can lead to a higher stock price if the company remains independent whereas the price associated with an […]

IPO 101: The Inside Scoop on IPOs

Twitter’s recent IPO filing is the talk of the town. Unfortunately many of the articles and blog posts about the offering are from authors who lack direct experience with the IPO process. Our frequent readers know this is exactly the kind of topic we love to explain. What follows is a short series of posts that attempt to pull back the covers on a process that few truly understand. In this series, we will cover: IPOs: Why do companies go public? IPOs: How do companies go public? IPOs: What happens to employees after the big day? Whether you’re fortunate enough to work at a company that will go public one day, or are just curious about the IPO process from […]

Company Going IPO? Four Things Every Employee Should Consider

Yesterday’s disclosure that Twitter filed to go public has once again fueled interest in the IPO market. Speculation runs rampant that AirBnB, Arista Networks, Box, Dropbox, Evernote, Gilt, Kabam, Opower and Square (all on our list 100 private companies you should work for) are the next to announce. If you work at one of these companies there are four things you need to start thinking about: 1. Exercising your stock options prior to the IPO 2. Gifting some of your stock to family or charities 3. Developing a plan to sell stock post-IPO lockup release 4. Deciding how you will manage the proceeds from the sale of your stock Exercising your stock options prior to the IPO Most companies offer […]

Managing A Silicon Valley Windfall

Sudden money – such as comes with an IPO or an acquisition – is a good thing, right? Yes, but it’s often accompanied by stress. People who have been working within a constrained budget, steadily paying off college loans and sizable Silicon Valley mortgages, suddenly find themselves with a seemingly limitless number of options for spending their money. In this recent Quora post, Wealthfront Director of Research Jeff Rosenberger answered the question: “What advice would you give to someone who has the opportunity to cash in some of his private company stock in the low seven digits?” Jeff offered a three-step plan. Divest your stock “Unless you have an informational advantage that tells you your company stock is meaningfully under-valued […]

Winning VC Strategies To Help You Sell Tech IPO Stock

It’s well known that 20% of venture capitalists’ portfolio companies generate 80% of their returns. What most people don’t realize is the same 80/20 ratio holds true for public tech investing. The imbalance is even more profound for tech IPO investing. We found that for companies that went public between 2002 and 2008, 21% of the companies generated 96% of the gains. Just like in venture capital, a majority of the companies that went public during this period (56%) turned out to be losing investments. Venture capitalists and professional public company tech investors train for years and collaborate with other talented partners to identify the 20% of the companies that generated 80% of the upside. Imagine how difficult it must be for tech employees to decide if they should […]

The IPO Millionaire Machine

The New York Times Bits blog writer Quentin Hardy recently interviewed Wealthfront CEO Andy Rachleff on the question of how many people – regular people, not executives – become millionaires after a typical tech IPO. Andy’s estimate is that tech IPOs will create about 12,000 millionaires in the next few years. Andy, also a co-founder of Benchmark Capital, helped Quentin do a back-of-the envelope calculation.  Here’s how that math works (What follows is a paraphrase from Quentin’s post). Including Facebook, the aggregate market value of the companies likely to go public in the next few years could be around $500 billion. Working backwards from that number, we can estimate the aggregate revenues of the companies at about $50 billion, because we […]