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Comment by squid_ca | Hacker News Reader

I am not an investor, financier, etc, so this will be a horribly naive question. Please bear with me.

From the comments regarding FB's IPO on HN in general, I am under the impression that the point of an IPO is to gain the company as much money as possible, and that in this regard, Facebook's IPO was a resounding success.

From the point of view of an investor, though, the IPO was a huge failure. Knowing, then, that any company approaching an IPO is trying to get as much money as possible from its initial investors, why would anyone want to be one? Is it solely because they are hoping that the company will be wrong about its own potential measure of success? Or was the Facebook IPO somehow different than an "average" one?

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>> Facebook's IPO was a resounding success.

That's correct. The CFO who led this should get a huge bonus. As Mark Cuban said: if the CFO said he was able to raise $10B in an IPO and then decided not to in order to protect investors, he should be fired. (That's a rough paraphrase.)

>> why would anyone want to be one?

Because if you can get in pre-IPO you usually do quite well selling to the suckers at the open. But the suckers don't realize that the key point is "pre-". A few might remember the glorious IPOs of the 90s that seemed to rocket up every day, and hope this will happen to every Internet IPO.

FB rode a bubble. An IPO is supposed be some mix of (a) like a giant VC round, with various institutional investors instead of VCs. The idea is that the company needs the money to fund growth. and (b) a chance for early shareholders to cash out, more easily than via private stock sales.

The awkward part is that (a) and (b) tend to contradict each other -- why would you sell your share if the company is growing? (good answer: you need to sell a bit to buy a house. bad answer: you think the company has no upside potential)

If Facebook chose to go public 2 years ago at $20/share, it may well have seen the same hype-driven runup. Or maybe the pre-IPO pre-SEC private market auctions fed a 2-year bubble driving the stock up to ~35 based on wishful thinking and non-SEC-approved financial speculation, and the IPO was the cresting wave that took the stock close to 40 just as the wave broke and reality set in.

Similarly naive answer: I'd imagine that the benefits of having a massive IPO and then having your stock tank are substantially less than having an increase in your stock value over time, as a company.

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