1/4 of companies that IPO'd in 2020-2021 trades below $2, risking delisting
wsj.com
wsj.com
Not to sound cold but the market needs a good cleansing and some of these companies that had unrealistic valuations need to get flushed out of the system. It’s not pleasant for those that find themselves in the wrong place at the wrong time but there were just some completely baseless valuations set during funding rounds and IPOs in 2020-early 2022 and now that needs to get cleaned up.
Cash and profit are king again. Anyone without both (or a absolute ton of cash to get through the market cleanse without raising) is in for a painful ride.
The cycle always seems to follow:
1. Cash enters the system through low interest rates by the fed and other economic factor (boom times).
2. Tons of new companies emerge, all hyped, all with shiny new products and tons of marketing.
3. Things are good for a while but eventually hard times hit. All the companies propped up by hype and that don't truly have a good business in place will fall the wayside.
4. The few companies that weather the storm tend to last longer and become established players in the space.
You could analyze the financials of the companies you're looking at, and gauge their product fit and overall market. But you won't have the visibility as a casual investor to get the kind of information you need to make a genuinely informed decision on a company.
Since you're betting on ponies to some degree, it's wise not to go for broke on just one.
I know nothing and This is NOT financial advice.
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In June 2021, "Oatly priced its initial public offering at $17 per share, giving it an implied valuation of $10 billion."
10 billion dollars for an oat drink company. We're way overdue a correction on tech stocks, the time for free, cheap money is over.
Similarly my understanding is that Cambly had a hard time raising their early round because all those VCs already knew English.
(This in no way justifies that valuation but I wanted to randomly chime in here.)
I don't mind it because of thinking that having a bit of it in every other cup of coffee is poison, it's more that the aftertaste is less enjoyable than straight espresso or an americano now that I notice it.
Time to give soy lattes a try, lactose intolerance is a literal PITA.
Edit: Personally I think the key to fast progress is better and better whitebox modelling of the body. More diagnostics and sensors to rapidly detect and respond to issues. When that is in place, we can do more fearless experimentation, secure in the knowledge that if something trends bad we can catch it quickly and abort / reverse.
I do not share your optimism, because you forgot about economy, investors and shareholders driving science forward, not viceversa. The primary goal for public companies is to increase revenue and market share, not creating healthier food than nature, if unhealthier food sells more.
Also, I do not share the hubris that science wins over nature. We have evolved to thrive on what exists in nature, it is not logical to assume we would thrive more with something we are not evolved for. Especially when profit, not health, is the primary driving force.
I guess I'll keep eating real meat and real vegetables.
Unless it's science to scale up tradition food systems and abandon the unhealthy food system we have today.
Whew that was taxing to write in HNglish.
My man, look at your second paragraph, even the high tech mitigation strategy you came up with is what can be done in short enough term to be part of a product development process, it won't change anything from the situation now.
The problem is not acute toxicity that is measurable in the short term, we have that nailed down or else people would be dropping dead fulminated from new Oreo flavors, but rather very long-term effects, sensors to respond rapidly will do nothing when the problem is what your diet does to you over the course of years.
The culprit is being pinned down as the high concentrations of linoleic acid, but this is all in hindsight, after decades of having people consume these things, there's absolutely no way you'll be able to run a controlled experiment for something like this even with gizmos that measure everything that you, right now, think you should measure.
Heck how are you going to know which of the technological marvels that people are consuming all the time is the one to blame?
when I first started learning about, I was not aware of all the intricacies of food: all the minerals, and vitamins and flavanols, fiber and countless other things that make up "real food". I think people tend to simplify food into just a few small variables (like protein and vitamin C) and think that's all there is to it. And it's nowhere near that simple. No matter how much I dig, there's more and more things to understand about a given food. Asking industry to produce better food than nature is like saying, I want to score higher on this test than the grading rubric. It just doesn't make sense.
I think the future should be making normal natural healthy foods accessible to more people. Why don't we have apple trees, fruit trees and citrus trees in every park and next to every sidewalk? this shouldn't be hard thing to accomplish.
Vehicles have air conditioning but that doesn't make motor companies appliance companies or HVAC companies either.
It depends on what the company's core value proposition is. Toyota's is clearly a car company. Tesla is now more of a car company, but there was a time when they had no or few cars but still had the battery and driving tech. Their valuation and promise was of bringing a new technology to the world, rather than a physical product.
Oat drink is tech? I am sometimes amazed how people can position a bog-standard business as 'disruptive tech'?
Explain how this works?
The Saudi Sovereign Wealth Fund has a bunch of oil money. It's known to be an oppressive regime. It buys a bunch of Uber stock with that money, and its name is now in the cap table.
Everyone saw every transaction. Its name is still clearly there.
It also doesn't need to turn, say, drug money into carwash profits, to avoid suspicion from tax agencies, because it is the tax agency; it's sovereign.
And even if I'm not the Saudi Sovereign Wealth Fund, but a private individual, and I want to launder money, I don't see how buying Uber shares helps me do that, because I will still need to have gotten the cash from somewhere, and buying shares creates no pretext for where that cash might have come from.
Unless there's a wash trade thing going on? Where legitimate actor A buys shares to keep the price up, while illegitimate secret ally B sells shares, in order to transfer wealth from one to the other?
I don't think that's what you're saying though.
So what, really, do you mean?
Honestly I'm assuming this is just one of those rhetorical things that we say but haven't really thought about. But if there's meat there, I'd like to know.
The question is...have the good times ended? Or is there just too much money out there desperately searching for ridiculous sized returns and the money train will get back up and running shortly. Anything other than spending that money on gov't infrastructure or social services.
I honestly can't decide if this is savvy or stupid. Basically the CEO's know that tech companies get outrageous valuations so even if they are say a commercial landlord (WeWork) or a oat milk manufacturer, they will bring in a tech department, build an app and a shiny website, start an engineering blog, and then probably work on some pointless but tangentially related project which most likely uses AI, Blockchain or some other hype tech.
So how did VCs get that so wrong other than turning a blind eye to the obviously terrible business models and investing because of their moral beliefs?
I sort of expect the market to solve these things. Someone placed a bet, once we process the hell out of soy and make it behave like a hamburger, the entire world will be willing to pay more money for a burger that might not be healthier but will have less saturated fat and no animal product in it. They raised some capital, proved they could build the product, spent and invested to get it in stores and fast food restaurants. Along the way they probably bumped into numerous issues scaling a food enterprise but somehow have managed to stay pretty close to the mission. Turns out that might be a bad bet. What if the veggie burgers were cheaper? What if you have to use GMOs to achieve that price point? Or maybe the idea isn’t that great or the product has some deficiencies, maybe those can be repaired. That’s why we do it.
Was the investment because of “moral beliefs” or because it takes billions to get a food to that market? The TAM here is interesting too, it just well distributed which is what makes it expensive.
Yes, it is. All the stuff you wrote makes 0 sense in the context of what we are discussing, I suspect you are very deep in the bubble.
>Was the investment because of “moral beliefs” or because it takes billions to get a food to that market?
You don't invest in something "to get it to market". You invest in something to make money. Food is a notoriously difficult and unprofitable market.
* This tastes almost as good as real meat, and better than some shitty burgers I've had. With some development it'll be indistinguishable.
* I'm not a vegan myself, but vegan products are a growth sector so we can make money there. I've heard veganism is popular with young people who worry about the environment, so the fact none of my 60-year-old golf buddies are vegan doesn't mean it's not a good opportunity.
* The world's population is rising, and countries like India and China have a growing middle class. Even ignoring veganism and environmentalism, demand for meat is likely to rise. A company with good quality substitutes and the ability to increase production fast could be well placed to capitalise on this.
* Lab-grown meat could revolutionise how we eat - why shouldn't every steak be perfectly marbled A5 Wagyu Ribeye, if it's being 3D printed in a lab? People who invest in the right company could make a fortune! This company isn't precisely that, but they've got a product I can taste right now, and it tastes pretty good to me.
* I need to polish my reputation, with some ethical investments to counterbalance all that money I've given to scumbags and scam artists. I'll invest the loose change I found down the back of my couch in this burger company.
These companies have been getting crushed for the past 6-12 months. Oatly is down 83% YTD. The economy has been tightening for months. I think you're a few steps behind the financial machinations in progress.
> More than one in four of the nearly 600 companies that went public via a traditional IPO
Edit: To clarify, the company that IPOs is a company like "CFII" (CF Finance Acquisition Corp. II). These companies are called SPACs, but they go through an IPO process themselves. The IPO is pretty fast because everyone knows what the shares are worth, but it is an IPO nonetheless. Most of the SPACs IPOed in 2020-2021. If they buy a company and then fail, that would probably be counted as a failure of a company that IPOed in 2020.
Just read the article…
I wonder to what extent the chip issue will resolve itself as we realise that not everything has to be IoT. I'm probably being overly cynical on this, though. There's still a lot of genuine uses for chips.
I guess the trick is to wait for a year or two, THEN invest in new tech IPOs. We need a bit of time for the crap to be flushed from the system. Do that, and there's probably a fortune to be made, as the tech that will IPO'd is likely to be of much higher quality.
I missed a real trick in not buying Google, for example. When did that float? 2002, or thereabouts. The markets were in real value territory the, so it was a good time to invest. I figured that Google were just being flashy, but I was too cynical at the time. Hindsight is always 20/20 though.
Dunno, maybe they'll be someone out there doing something interesting with RISC-V that has a potential to exploit some niche market. It doesn't have to be "Web 3.0".
I have wondered if there are predictors of when average returns of IPOs will be high. When the IPO market is hot and it is easy to list, that may be a bad time for retail investors to buy IPOs when they start trading.
For example WeWork with Neumann or Uber with Kalanick.
Is negative unit economics better than a token with absolutely no utility?
I would say yes - because they often create a valuable marketplace that serves customers and pays providers. They just find out later that they are in a race to the bottom with other platforms. Which means healthy market competition.
However, if the stock continues to do well, it means the shareholder class (now representing public shareholders) continues to extract rents from both sides of the ecosystem. Uber is still extracting rents years later… drivers pay it half what we pay them.
An open source platform economy would have been better for the public, with none of the controversy of Big Tech platforms. All these Ubers could have been had source competitors a long time ago. Why don’t they?
Let's say you own $10M in privately-held Stripe stock. You think that stock is probably worth $100M, but you'd like to buy a $2M house. The bank doesn't accept your privately-held stock as collateral for a mortgage. It'd make sense to sell some portion of your stock to buy that house.
Now, suppose instead you think there's a 95% chance the stock goes to 200M, but a 5% chance sketchy financials tank the entire company and it's worthless.
Especially in the aftermath of the FTX meltdown, I've heard plenty of second-hand stories about people who were fabulously wealthy on paper, and then suddenly not wealthy at all. Diversification would have limited some of the risk and preserved some of the wealth, at the cost of part of the upside. Your expected value might go down, but your worst-case scenario goes up.
https://www.nasdaq.com/articles/what-happens-to-ipos-over-th... has some interesting numbers, and lots of what it shows seems to fit the "dumping".
Of course, if I owned any stock in a pre-IPO company I'd want to dump it as fast as I could, too. IPO companies are rarely profitable, after all.
1. Diversification: the vast majority of individuals owning pre-IPO shares almost certainly hold options, and in tech companies at least where regular employees get these options few of these individuals are likely to have a large, diversified portfolio.
2. For those same individuals, it's often a life-changing event. (In my case, I went from servicing 6-figures of medical debt and 5-figures of student loan debt and contributing the minimum to my 401k to a 7-figure net worth with income producing, debt-serviced assets.)
The most successful IPOs for the company are where it sells a bunch of stock at prices that then stay steady or even go down, they traded (potentially worthless) paper for real cash. I suspect the majority of IPOs are "successful" in the second way even though they're "sold" as being (a chance?) at the first way.
Yes, it's a known phenomenon that IPO's that list during periods of high activity perform worse over time. See https://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1991...
Why? I guess its something to do with rules about penny stocks. but in the modern world theres no reason why we can't have stocks at $0.00002.
I'm guessing this is a USian thing? here in the uk stocks are regularly priced under £2.
Lloyds Bank is a ftse 100 company currently below 45p
if you have 100,000 shares in circulation at $10 each you have a market cap of $1,000,000.
the same as if you had 10 x $100,000 shares, or 1,000,000 x $1 shares.
but why the rule? theres no reason why my $1 share can't rise 0.1% just like the $10 share. they don't hand me a 1/10th penny coin. so why arbitrarily decide that stocks below $x are bad?
yes a 1c movement is proportionately more, but if youre saying that humans are so obviously psychologically anchored by such round numbers, then the least of humanities problems, and finances, and capitalisms, is the price of a share.
I believe for DIJA if they have a valuation under $2 for longer than a year they get delisted.
This doesn't mean you can't trade them anymore, they just become OTC (over the counter) stocks. Many brokers offer access to OTC stocks, but liquidity is a real concern with those stocks.
It's bad enough when stocks like GameStop were treated like a meme and turned into a casino game- you could create an entire industry out of doing that to sub-penny stocks because the low price per share makes even small changes in price very impactful.
It's likely just because for legacy reasons exchanges can't handle fractions of a cent, so below $1 the price becomes too discrete
again, people don't buy stocks with actual physical cash. theres no reason why we are tied to whole pennies. a 2c stock could rise or fall 1% in the same way as a $2 stock could.
plus lowering the number of shares in circulation isn't going to make it less susceptible to pump and dumps.
finance is populated by a lot of extremely well paid people, I can't believe everyone has a blind spot around 'bigger arbitrary token size == better'
To put in bluntly. If you're letting human factors get involved your doing it wrong.
> For example, on the New York Stock Exchange (NYSE), if a security's price closed below $1.00 for 30 consecutive trading days, that exchange would initiate the delisting process.
It can be avoided via a "reverse stock-split", which seems to be easy enough to get approved (no owners of the stock want to be delisted!), so nothing hugely dangerous... But it's not a good sign for you company's general health I guess.
It should be illegal to bring a company public without proven positive unit economics.
Self driving, deep tech… all should stay within big corp R&D
Can you explain how we regulated IPO's out of existence?
The current argument for late IPOing seems to be abundant capital for later rounds but we'll see how that plays out given gesturing around the state of things.
[0] https://www.vox.com/2014/9/11/6134529/a-new-york-stock-excha...
[1] https://www.mckinsey.com/industries/technology-media-and-tel...
I think we can agree Sarbox has done nothing to slow down IPO's. I have yet to hear a CEO say they'd go public but Sarbox has made it burdensome.
I've gone over this before in nauseating detail. Sarbox just made clear what best practices all companies should be doing, public or not. I have yet to hear any burden that it imposes on companies that would prevent them from going public.
So I think we can skip Sarbox as a reason. unless someone can show a CEO claiming they'd be public now if not for Sarbox.
> The current argument for late IPOing seems to be abundant capital for later rounds but we'll see how that plays out given gesturing around the state of things.
If this is true, we should see a bunch of early stage companies going public now as the free money era is over. I'll wait to see by the end of the year or even the end of next year, but it doesn't look like the free money hypothesis is the full reason here.
The handful of startups that might have generated a possible upside for retail investors would have been able to IPO early even under SARBOX because their financials would have supported an early IPO (as in a proper IPO, not a SPAC), but retail investors would not have shared in this upside anyway because those IPOs would have been heavily oversubscribed by institutional investors.
The companies in this article would never have generated upsides for mom and pop investors, because they lacked the financials or business models to support any upside. SARBOX saved mom and pop investors hundreds of billions of dollars that would otherwise have just lined the pockets of investment banks and VCs. This is a good thing.