The LinkedIn IPO has brought in lots of commentary. The Sydney Morning Herald brought in this headline:
"The old boys' network: LinkedIn reveals investment bankers up to nasty old tricks"
I have no doubt that almost everyone at LinkedIn was thrilled to see the run-up; most executives at start-ups usually are. An IPO is an important marker. And, of course, the executives themselves are suddenly rich. But, in reality, LinkedIn was scammed by its bankers.
The fact that the stock more than doubled on its first day of trading - something the investment bankers, with their fingers on the pulse of the market, absolutely must have known would happen - means that hundreds of millions of additional dollars that should have gone to LinkedIn wound up in the hands of investors that Morgan Stanley and Merrill Lynch wanted to do favours for. Most of those investors, I guarantee, sold the stock during the morning run-up. It's the easiest money you can make on Wall Street.
As Eric Tilenius, the general manager of Zynga, wrote on Facebook: ''A huge opening-day pop is not a sign of a successful IPO, but rather a massively mispriced one. Bankers are rewarding their friends and themselves instead of doing their fiduciary duty to their clients.
Reality is that LinkedIn and its Board were in control of the pricing. They clearly saw the orders before they signed off on the pricing. Long before the IPO day they chose to NOT follow the path of Google who did a "Dutch Auction" for their IPO in 2004.
In a Dutch auction, a company reveals the maximum amount of shares being sold and sometimes a potential price for those shares. Investors then state the number of shares they want and at what price. Once a minimum clearing price is determined, investors who bid at least that price are awarded shares. If there are more bids than shares available, allotment is on a pro-rata basis--awarding a percent of actual shares available based on the percent bid for--or a maximum basis, which fills the maximum amount of smaller bids by setting an allocation for the largest bids.
Google's success in pulling off a large-scale Dutch auction was due to its tremendous brand recognition and huge financial resources. LinkedIn conducted a traditional IPO in which underwriters' promotional work heats up the market for shares.
To say that LinkedIn was not in control is a little disingenuous.