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ServiceNow's IPO Pops

6/29/2012

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ServiceNow, an IT management cloud service backed by venture firms Greylock Partners, JMI Equity and Sequoia Capital, priced its initial public offering at $18.00 per share, opened at $23.75 for an IPO "pop" of nearly 32%, and is trading at around 23.00 in mid-morning trading.  Morgan Stanley is the lead left book-running underwriter, and this is the first IPO led by Morgan Stanley since the Facebook IPO.  ServiceNow is listed on the NYSE with the ticker NOW.  A strong showing by ServiceNow could open the IPO window for other venture-backed companies.

Here are links to ServiceNow's latest (full) S-1/A filing with the SEC:  
http://www.sec.gov/Archives/edgar/data/1373715/000119312512274253/d301887ds1a.htm 

Here are links to articles on the IPO:
Bloomberg:  http://www.bloomberg.com/news/2012-06-29/servicenow-advances-in-debut-after-210-million-ipo.html

Retuers:  http://www.reuters.com/article/2012/06/28/servicenow-ipo-idUSL2E8HSK1M20120628

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First Venture-Backed IPOs Since Facebook Have Mixed First Day of Trading

6/28/2012

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Two venture-backed companies launched their initial public offerings today, and had a mixed first day of trading.  Tesaro, a biotechnology company, and Exa, a simulation design software company, are the first venture-backed IPOs to begin trading since Facebook's IPO on May 18.

Tesaro priced its IPO at $13.50 per share, at the mid-point of its $12-$15 range, and raised $81 million in the offering for an IPO market capitalization of $360 million.  Tesaro's stock opened at $13.94 per share for an opening pop of 3.4% and closed at $13.69, up 1.4% from the IPO price.  Citigroup was the lead left book-running underwriter on the offering.  Venture capital investors in Tesaro include InterWest Partners, Kleiner Perkins Cauflied & Byers, New Enterprise Associates, Pappas Ventures and Venrock. 

Exa priced its IPO at $10.00 per share, below the offering range of $11-$13, and raised $63 million in the offering for an IPO market capitalization of $132 million.  Exa's stock opened at $10.01 per share, flat, and closed at $9.80, down 2% from the IPO price.  Stifel Nicolaus Weisel was the sole book-running manager on the offering.  Venture capital investors in Exa include Boston Capital Ventures and Edelson Technology Partners. 

It would have been nice for these companies to have strong performances for the day, but another test will be tomorrow's expected IPO of ServiceNow, an IT management cloud service backed by venture firms Greylock Partners, JMI Equity and Sequoia Capital.  ServiceNow plans to trade on the NYSE with Morgan Stanley as the lead left boor-running manager.

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What Happened to Silicon Values?  Bill Davidow Column in the Atlantic

6/27/2012

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Bill Davidow, co-founder of Mohr Davidow Ventures, has an article on the Atlantic "What Happened To Silicon Values" that provides an interesting take on the shifting perspective in Silicon Valley on the value of the customer.  Here's the link:   http://www.theatlantic.com/technology/archive/2012/06/what-happened-to-silicon-values/258905/

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Rupee Slump Deepens India Private Equity Quagmire: Reuters

6/26/2012

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Private Equity investments are facing challenges in India, according the the Reuters article "Rupee Slump Deepens India Private Equity Quagmire."  According to the article, current challenges include:
  • The Rupee has slumped by 20% and is Asia's worst performing currency over the past 12 months.
  • Fierce competition for deals.
  • Few willing sellers.
  • A regulatory ban on leverage.
  • A fickle market for exits through IPOs.
  • Investment holding periods have lengthened.
  • India's economy has weakened as growth has slowed.
  • Public share prices have slumped.

Here's a link to the article:  
http://in.reuters.com/article/2012/06/26/india-privateequity-idINL3E8HE62I20120626 

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Quant Analysis Of Why A VC Passes On A Deal

6/25/2012

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Jay Jamison, a Partner at BlueRun Ventures, has posted an interesting analysis on TechCrunch called "The Anatomy Of A Pass, A Quantitative Analysis On Why A VC Passes."  Jamison analyzed over 200 pitches he saw and rated each company on a five point scale based on Traction; Market; Team; Product; and Likelihood of Receiving a Term Sheet.  He then ran a regression analysis and found that Team and Market are by far the most important factors in a company receiving a term sheet from BlueRun.  This makes sense to me as most early stage investors focus on team and markets.  He then finds that Traction is the next more important factor, and much more important than than Product (at least in his equation).  It's an interesting analysis and worth a read.  Here's a link to the article:   http://techcrunch.com/2012/06/24/the-anatomy-of-a-pass-a-quantitative-analysis-on-why-a-vc-passes/

Also, I encourage you to read his scoring rubric for Team, Market, Traction, Product, and Term Sheet, which can be found here.  Here's the link:  
http://jayjamison.com/2012/06/05/support-info-for-anatomy-of-a-pass/ 


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IPO Market Gets Post-Facebook Test: WSJ Article

6/24/2012

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Today's article at WSJ.com "IPO Market Gets Post-Facebook Test" discusses the four initial public offerings set to price this week, three of which are backed by venture capital firms.  The first IPO to price will be the first IPO since Facebook.  The four IPOs on deck are for:
  • ServiceNow, an IT management cloud service backed by venture firms Greylock Partners, JMI Equity and Sequoia Capital.
  • Exa, a simulation-driven design solutions provider backed by venture firms Boston Capital Ventures and Edelson Technology Partners. 
  • Tesaro, a biotechnology company backed by venture firms InterWest Partners, Kleiner Perkins Cauflied & Byers, New Enterprise Associates, Pappas Ventures and Venrock.
  • EQT Midstream Partners, an energy partnership that is an EQT Corporation company.

According to the article, after a freeze in the IPO market, the first IPO out is known as an "icebreaker" deal, and has historically brought good results.  This may be due to valuation concessions that IPO investors demand in the wake of the IPO freeze.  The article then discusses the IPOs in more detail.  It's a good weekend read.

Here's a link to the article.  
http://online.wsj.com/article/SB10001424052702304765304577483213317783398.html 

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The Top 10 Things That Make Air Travel Annoying: Stephen M. Walt Column

6/23/2012

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Stephen M. Walt's column on ForeignPolicy.com "The Top 10 Things That Make Air Travel Annoying" really hit a chord with me.  I travel a lot, both domestically and internationally, and found this article of interest.  Walt's top 10 are, briefly:
  1. Baggage fees.
  2. Change fees.
  3. Poor entertainment choices on flights.
  4. Loyalty programs with no real benefits.
  5. TSA difficulties.
  6. Airlines keeping passengers in the dark about delays, flight cancellations, etc.
  7. Late night dinners on night flights.
  8. In-flight restrictions that don't make sense, like turning off electronics prior to take-off and landing.
  9. Poor customer service.
  10. Passengers who rant about acts of fate / God.

I'd add Immigration lines as number 11.  After my latest debacle at London's Heathrow airport (the worst major international airport in the world, in my opinion), which you can read about here, immigration lines have to be one of the most irritating aspects of international travel.

I'd also add the baggage claim process as number 12.  I've had to wait ridiculous lengths of time for my checked bag to show up on a carousel.  Before you say that any seasoned international traveler knows never to check a bag, let me say that I take presentation materials and workout gear, and so I often have no choice but to check a bag.

Hat tip to my friend Kurt for forwarding the column to me.

Here's a link to the article:  
http://walt.foreignpolicy.com/posts/2012/06/22/the_top_ten_things_that_make_air_travel_annoying 

Here's a link to my post on London Heathrow, the worst major international airport in the world in my opinion:  
http://www.allenlatta.com/1/post/2012/6/heathrow-airport-is-an-embarrassment-to-the-uk.html 

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Lawmakers Push For Overhaul Of IPO Process

6/21/2012

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The Wall Street Journal article "Lawmakers Push for Overhaul of IPO Process" reports that lawmakers are calling on the SEC to overhaul the initial public offering process in the wake of the Facebook IPO.  The crux of the letter seems to be that underwriters are able to "dictate" the price at which IPO shares are first sold to investors.

In my opinion, this is incorrect.  The purpose of the IPO roadshow is to market the issue to institutional investors and to build the order book.  Building the book is a process whereby the institutional investors give orders for a number of shares at a certain price.  It is this process that the book-running underwriter determines the "market" price for the IPO.  At the beginning of the roadshow, the underwriters establish a pricing range for the IPO, but this initial range is often shifted higher or lower depending on road show demand, and the final pricing is dictated by supply and demand.  It is true that the price at which institutional investors buy IPO shares usually contains an "IPO discount" but this discount provides an incentive to all IPO investors to invest in these risky propositions.  Also, in my view, investors purchasing stock in an IPO once it starts trading are basically bettors and are gambling that the stock price will go up.  Stock prices are typically very volatile after an IPO and so these IPO speculators should bear the risks of their bet.

I believe the IPO process generally works well, and my thoughts on how to improve it relate to disclosure.  I'm a big believer in disclosure as it helps the markets operate more efficiently.  The more information, the better.  To improve the IPO process, I would have all of the underwriting syndicate's  projected revenue and earnings estimates for the company disseminated publicly so that all institutional and retail IPO investors are working with the same information.  In addition, if the company revises guidance during the IPO process, this information should also be made public.  Finally, while I'm on a roll, I believe that every IPO should disclose at least five years of annual and three years of quarterly financial and operating data, and that the metric "free cash flow" should be a required reporting metric.

Link to The Wall Street Journal article:  
http://online.wsj.com/article_email/SB10001424052702304441404577479024205961592-lMyQjAxMTAyMDIwMTEyNDEyWj.html#project%3DSECIPO%26articleTabs%3Darticle 

The letter from Congress to the SEC can be found here:  
http://online.wsj.com/article_email/SB10001424052702304441404577479024205961592-lMyQjAxMTAyMDIwMTEyNDEyWj.html#project%3DSECIPO%26articleTabs%3Dinteractive 

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Workday: The Gentleman's IPO - Bloomberg Businessweek Article

6/20/2012

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The recent Bloomberg Businessweek article "Workday: The Gentleman's IPO" offers an interesting view of the initial public offering plans of Workday, the human resources and financial management cloud services provider.  According to the article, Workday should post bookings of $500 million this year, and plans to raise a $500 million in its IPO.  The company will file its S-1 registration statement with the SEC confidentially, as allowed under the JOBS (Jumpstart Our Business Startups) Act.  Under the JOBS Act, companies filing their registration statements confidentially only have to make them public 21 days prior to their roadshow.  This confidential filing option is attractive to smaller companies as it allows them to work through any issues with the SEC outside the glaring spotlight of the media, and their competitors.  

Venture capital investors include: Bezos Expeditions, Greylock Partners, InterWest Partners, and New Enterprise Associates. According to the article, other investors include Dell's Michael Dell, LinkedIn's CEO Jeff Weiner and LinkedIn co-founder Reid Hoffman.

Here's the link to the article:   http://www.businessweek.com/articles/2012-06-18/workday-the-gentlemans-ipo


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Tech Startup Valuations Fall Post-Facebook IPO

6/20/2012

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The article on The Verge "After Facebook's IPO Flub, Value of Tech Startups Falls Back to Earth" discusses the divergence in the pre-IPO and post-IPO valuation disconnect for companies like Facebook, and how there have been no initial public offerings since Facebook.  This means that tech startups will have a harder time raising capital and that more tech companies will be more receptive to being acquired.  One tidbit from the comments was that apparently Anthony Noto of Goldman Sachs (a co-lead manager on Facebook's IPO) indicated that Facebook refused to take the usual IPO discount of 10-20% that allows institutional investors to profit on the first day.  If this is the case, then Facebook really did do a great job of taking all the money off the table in the IPO.  If an IPO is truly fully priced, there's really no where to go but down for the stock price.

Here's a link to the article:  
http://www.theverge.com/2012/6/19/3096611/facebook-ipo-startups-valuations-bubble-acquisitions-pop 


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3 Reasons VCs Can Get IPOs Very Wrong: Glenn Solomon Post

6/19/2012

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Glenn Solomon, a partner with GGV Capital, contributed a post to Fortune's From the Crowd Blog "3 Reasons VCs Can Get IPOs Very Wrong" which explores some reasons why venture capitalists may over-value private companies prior to their initial public offerings.  The post was written on May 21, just after Facebook's IPO (which looked successful at that time), but before Facebook's stock price broke the IPO price.  The post uses Zynga and Groupon as examples of returns VCs have obtained in later rounds or in secondary purchases prior to the IPOs of these companies.  Solomon points to three primary factors that might have played a role in VCs obtaining less than stellar returns from these pre-IPO transactions:
  • Growth Rate Emphasis.  VCs are very focused on growth rates and will pay high valuations for companies that are growing very rapidly.  However, the public market isn't willing to pay extra for high growth, so there's a disconnect which may lead to VCs overvaluing a company prior to its IPO.
  • Profit Margin Factors.  Many private, rapidly growing companies aren't profitable, and so the basic public market metric of P/E ratio doesn't apply.  Because of this, VCs look at Price/Sales ratios.  While public investors do this as well, they want to see earnings and margin expansion over time.  As it can take time for this to happen, public investors may value these companies lower than VCs.
  • Valuing Unproven Models.  When a company introduces a new business model, it won't have comparable companies to use to measure performance.  As a result, public investors can be uncertain as to how to value these companies until the business models are more mature, leading to volatility in valuation.

I think this is an insightful post and a good read.  Here's the link:  
http://finance.fortune.cnn.com/2012/05/21/3-reasons-vcs-can-get-ipos-very-wrong/ 

Link to Glenn Solomon's blog:  
http://sandhillrdmeetswallst.com/ 

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Morgan Stanley Was 'Driver' on Facebook's Wild IPO Ride: WSJ.com

6/18/2012

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The article in today's Wall Street Journal "Morgan Stanley Was 'Driver' on Facebook's Wild IPO Ride" offers an insightful view of Morgan Stanley's role in Facebook's initial public offering and some of the decisions that may have impacted the IPO's performance.  A worthwhile read.  Here's the link:   http://online.wsj.com/article_email/SB10001424052702303822204577464331791367546-lMyQjAxMTAyMDEwODExNDgyWj.html

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Benefits to Microsoft From Yammer Acquisition

6/16/2012

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Yammer, the enterprise social networking company, is being acquired by Microsoft for $1.2 billion, according to The Wall Street Journal.  Yammer facilitates social networking, collaboration and file sharing across the enterprise, and currently more than 85% of the Fortune 500 use Yammer's services.

Benefits to Microsoft of the acquisition include:
  • Product enhancement.  Yammer's enterprise social networking platform may enhance a number of Microsoft products, including Outlook, SharePoint and possibly SkyDrive and Dynamics CRM.  These are likely the true synergies from the acquisition.
  • Enterprise Customer Base Expansion.  Yammer reportedly has over 200,000 enterprise customers, and Yammer boasts that more than 85% of the Fortune 500 use Yammer's services.  This could drive cross-selling and up-selling opportunities.
  • Skype possibilities.  Skype could be a beneficiary of Yammer's enterprise solutions.  Imaging Skype at an enterprise level that includes Yammer's capabilities.
  • Defensive acquisition.  Acquiring Yammer takes away a future competitor and also takes Yammer out of play for other companies to acquire.  It also helps Microsoft catch up to Salesforce.com and Oracle, which have recently made acquisitions in this space.

Links:

Prior post on the acquisition:  http://www.allenlatta.com/1/post/2012/06/yammer-to-be-acquired-by-microsoft-for-12-billion-wsj-report.html 

WSJ.com article on the acquisition:  
http://online.wsj.com/article/SB10001424052702303822204577467312505454118.html?mod=googlenews_wsj 

VentureBeat article on the synergies from the transaction:  
http://venturebeat.com/2012/06/15/why-microsofts-purchase-of-yammer-is-the-smartest-deal-of-the-year/ 

ZDNet article on the synergies (and an argument that the acquisition is "zany"):  
http://www.zdnet.com/blog/btl/microsoft-yammer-and-the-land-grab-social-enterprise-lunacy/80009 

Trefis article on the synergies:  
http://www.trefis.com/stock/msft/articles/126937/microsoft-to-acquire-yammer-for-1-billion-we-think-it-makes-sense/2012-06-15 
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Yammer To Be Acquired By Microsoft for $1.2 Billion: WSJ Report

6/15/2012

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Yammer, the enterprise social networking company, has agreed to be acquired by Microsoft for $1.2 billion, according to a report by The Wall Street Journal.  The acquisition will help Microsoft fill in its Office product suite with social networking and collaboration tools and it's also defensive in nature in that these types of companies are likely to become competitive to the Office suite of products.  It's good news to enterprise technology firms because it helps to ratify the business model and valuations, and its good for venture capital firms as it shows there's a lucrative exit for these deals.

Yammer's last venture round was in February of this year, raising $85 million at a rumored valuation of $500-$600 million, according to an article in TechCrunch.  The February financing brought total venture investment in Yammer to $142 million.  Assuming the rumored valuation range was correct, this is a nice (and fast) payday for the February round investors.

Venture capital investors in Yammer include Charles River, CrunchFund, DFJ Growth, Emergence Capital, Founders Fund, Khosla Ventures, Meritech and USVP.
 
Link to the WSJ.com story:  http://online.wsj.com/article_email/SB10001424052702303822204577467312505454118-lMyQjAxMTAyMDEwNDExNDQyWj.html#articleTabs%3Darticle 


Link to the TechCrunch story:  
http://techcrunch.com/2012/02/29/enterprise-social-networking-platform-yammer-raises-85m-from-dfj-growth-khosla-and-others/ 
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How Starbucks Is Turning Itself Into A Tech Company: VentureBeat Article

6/14/2012

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Starbucks has fully endorsed the digital age with the creation of a new position, Chief Digital Officer.  The VentureBeat article "How Starbucks is turning itself into a tech company" explores how Starbucks has recognized the importance of the digital offerings to its customers and to the company.  Starbucks' customer base is increasingly mobile and social.  By combining all of its digital businesses (such as wifi offerings, social media, digital marketing, etc.) under one executive, the goal is to make digital a priority and to help spur even more growth for Starbucks.  In my view, we will see more companies develop this type of role as customers shift even more to mobile applications and social networks.  The article is a good read.  Here's the link:   http://venturebeat.com/2012/06/12/starbucks-digital-strategy/
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Companies Born in Europe, but Based on the Planet: DealBook

6/14/2012

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The recent DealBook article "Companies Born in Europe, but Based on the Planet" provides an interesting look at how many European start-ups are making an international expansion strategy a focus early on.  The article highlights the experience of SoundCloud, the web-based audio sharing service, and discusses how London, Paris and Berlin are attracting technology start-ups and investors.  Here's the link:  http://dealbook.nytimes.com/2012/06/11/companies-born-in-europe-but-based-on-the-planet/ 
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Venture Capital At A Tipping Point: Robert Ackerman of Allegis Capital

6/12/2012

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Robert Ackerman of Allegis Capital has a good post on PEhub.com called "Venture Capital at a Tipping Point."  In this post, Ackerman discusses his views on why venture returns are poised for an upward trajectory.  The first reason is the "new era of  of entrepreneurial innovation and creativity" where new developments in cloud computing, social media and mobile are pushing the edges of innovation outward.  The second reason is the right-sizing of capital in the venture capital universe.  Where for many years there was too much capital, the capital flows are now appropriate for the industry.  Other reasons include the increase in corporate merger and acquisition activity, the JOBS Act which lower regulatory hurdles for venture capital-backed companies to go public, and the increased activity in the M&A and IPO markets.  It's a good read.  Here's the link:   http://www.pehub.com/154685/robert-ackerman-venture-capital-at-a-tipping-point/
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What is a Successful IPO? - Updated

6/11/2012

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Update:  After some feedback on my original post on May 21, 2012, I've amended it to add a separate section for pre-IPO investors and to update it for recent events.

Facebook's IPO has been branded a failure by virtually everyone.  However, there have been a few articles declaring the IPO a success.  All of this begs a larger question:  What is a Successful IPO?

My answer to this question is that it depends on perspective: that of the company; pre-IPO investors; the underwriting syndicate; the institutional IPO buyer; and retail investors buying the stock on its first day of trading.  Let's look at these perspectives and use Facebook's IPO as an example.

The Company's Perspective.  In my experience as a former investment banker working on IPOs, a company wants a few things in an IPO: (1) to raise the capital that it needs (and/or to facilitate existing shareholders selling in the IPO); (2) a favorable valuation; (3) to minimize IPO fees and expenses if it can; (4) seeing the stock perform well in the aftermarket; and (5) the media reporting favorably on the IPO.  Let's look at #4.  Why does a company want its stock to perform well in the aftermarket?  The primary reason is that the wealth of existing shareholders (including founders) and employees who hold stock options depends on the stock price.  Once an IPO prices, the stock price becomes a benchmark for founders and employees (and pre-IPO investors and the investing public at large).  If the stock price goes up post-IPO, shareholder and option-holder value increases, which is the goal.  If the stock price dips below the IPO price, there will be disappointment, especially among employees who hold stock options.  Another reason is that a strong stock is helpful as an acquisition currency.  A rising stock price is an attractive currency to targets.  

In my view, how the company's stock price performs over the next 180+ days also matters.  At 180 days after the IPO, selling restrictions for most pre-IPO shareholders will expire (this 180 day period is known as the "IPO lock-up period").  Markets take note of lock-up expirations.  Also, at 180 days after the IPO, a company will have reported its first quarterly results as a public company.  It's after this lock-up period that all IPO restrictions expire and shareholders can begin to sell their shares to the public (via Rule 144 sales).

So from Facebook's perspective, is the IPO a success?  In three of the above five metrics, yes, but in two important metrics, a resounding no.  Facebook raised significant capital (nearly $6.8 billion for the company and over $9 billion for selling shareholders).  Favorable valuation?  At an IPO market cap of over $81 billion, I'd say so (even though the market cap has dropped post-IPO, it's still impressive).  The company paid 1.1% in underwriting fees, which is well below the 7% customary for most technology IPOs, and also lower than many of the larger IPOs (by comparison, Visa's underwriters earned commissions of 2.8% in a $17 billion IPO; Groupon's underwriters earned commissions of 6%).  Based on the fourth metric, post-IPO performance, Facebook's IPO has been a failure in my view.  In addition to the drop in the stock price, Facebook has granted certain shareholders a very short 90 day lock-up period, so the market may be flooded with additional stock 90 days after the IPO date, which could drive the stock price down even further.  Finally, for media coverage, the pre-IPO the media coverage was generally favorable, but coverage post-IPO has been overwhelmingly negative - overall I'd say this was a failure as well.  So from Facebook's perspective, the IPO was mixed - partly successful and partly unsuccessful.

Pre-IPO Investor Perspective. Investors in a private, pre-IPO company are typically friends and family, angel investors and venture capital fund investors.  From their perspective, a successful IPO is typically is one where they are able to obtain a significant return on their investment either as a selling shareholder in the IPO, or a selling shareholder after the IPO (typically in a subsequent public offering or through Rule 144 sales when all lock-up restrictions expire).

From the pre-IPO investor perspective, was the IPO a success?  For the investors that were selling shareholders at the IPO, the IPO was a stunning success.  This includes venture capital firms Accel Partners, Greylock Partners, Meritech Capital Partners, among others, and angel investor Peter Thiel.  These pre-IPO investors invested in Facebook's early stage financings and sold their shares in the IPO for significant returns.  For the pre-IPO investors that will be selling shareholders at some point in the future, the answer is it depends on the price at which they ultimately sell their shares (and, of course the price at which they acquired their shares from Facebook).

The Underwriting Syndicate's Perspective.  It's not just about fees - it's also about reputation: reputation with future IPO clients, with institutional IPO investors; and with the investment community in general.  Attracting IPO clients is largely about league tables (e.g., which bank has the most "left lead" underwriter roles for that sector and in general), IPO performance (how the bank managed the IPO and how the stock performed post-IPO), and equity research (analyst reputation and coverage).  Importantly, banks will work hard to ensure that the stock price stays above the IPO price.  If the stock price falls below the IPO price, the IPO is considered "broken" and it is a black eye for the bank.  Banks engage in post-IPO market price stabilization to keep the stock price at or above the IPO price.  Reputation with institutional IPO investors is also important to future IPO performance - if institutional investors won't buy IPOs from a bank over valuation and aftermarket performance concerns, the bank's reputation will ultimately take a hit.  It is for this reason that banks build in an IPO discount when selling to institutional investors.  Partly as a result of this discount, there is usually an IPO "pop" of about 10-15% from the IPO price to the first trade.  If this pop doesn't occur, then the bank may have a harder time selling the next deal to institutional investors.

So from the underwriters' perspective, was the Facebook IPO a success?  I'd have to say a resounding No.  Note that the syndicate did earn $176 million from the deal in fees and commissions.  The stock even had an 11% pop at first trade.  But the stock price dropped and "broke" the IPO price.  This is a huge black eye for Morgan Stanley, the "left lead" bank on the IPO.  In addition, as the stock price broke the IPO price the over-allotment option will not be exercised, so the banks will miss out on the additional fees the sale of these shares would have generated.  The media has been highly negative on the IPO.  Overall, my perception is that the IPO was a big failure for the underwriting syndicate.

Institutional IPO Buyer's Perspective.   Institutional buyers are typically long-term investors and so the stock price one day or one month after the IPO may ultimately not be that important.  But as discussed above, many have an expectation that they are buying the IPO shares at a discount to what the true valuation is, and given that they do expect the stock to trade up after the IPO.

From the Institutional IPO buyer's perspective, the Facebook IPO is currently looking like a big failure.  However, as institutional buyers are typically long-term investors, how the stock trades over the long term is what is key.  So the ultimate result will depend on where Facebook's stock trades in the long term.

Retail IPO Buyer's Perspective.  Retail investors buying IPOs in the after-market are taking big risks, and it looks like most were burned in the Facebook IPO.  In the first day of trading, Facebook opened at $42.05 (an IPO pop of almost 11%) and closed at $38.23.  If a retail buyer purchased at $42.05 and sold at $38.23, that's a 9% loss.  The stock price has dropped steadily since then, and so those retail investors who purchased at the IPO opening price are feeling lots of pain.

A Note on the Media.  The media helps shape public opinion and so is an important part of the IPO process.  From the media's perspective, a juicy headline sells papers (well today it sells online advertising...).  So if the IPO is a big winner or big loser, the media wins.  With Facebook, the pre-IPO reporting was generally favorable, but  the media had a field day with the IPO under-performing in its first day of trading and the fall afterwards.  From the media's perspective, the Facebook IPO was a huge success.

Additional Notes.  The above thoughts represent my developing thesis on the topic.  Any constructive feedback would be welcomed to help me further develop my views.  I don't own any Facebook stock. 
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Early-Stage Valuation Correction - TechCrunch Article

6/9/2012

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Kim-Mai's article on TechCruch "It’s Not A Bursting Bubble. It’s a Correction And It Will Take Awhile." provides a good look at the current state of valuations of early-stage technology companies in the aftermath of Facebook's initial public offering.  The article also discusses the fundraising environment and lists several early-stage venture capital funds that have been raised recently.  Interesting read.  Here's the link:
http://techcrunch.com/2012/06/08/its-not-a-bursting-bubble-its-a-correction-and-it-will-take-awhile/ 

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Business Software Companies Preparing For IPOs: Reuters Article

6/8/2012

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A number of business software companies are preparing for initial public offerings in the next 12 months, according to a Reuters article.  With the rapid rise of cloud computing, these companies hope that their business models, which leverage the cloud, will enable them to go public.  The business model that these companies use is called Software As A Service, or SaaS, whereby they essentially lease their software to companies on the cloud, and their customers pay them monthly based on the number of users (or to use the lingo, seats).  Investors like the recurring revenue model as it gives better visibility to a forward revenue stream.  The Reuters article identifies a number of companies planning IPOs.  The article can be found here:   http://in.reuters.com/article/2012/06/08/idINL1E8H773O20120608
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Lending Club Raises $17.5 Million From Kleiner Perkins and John Mack

6/7/2012

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Lending Club, the social (or peer-to-peer) lending site, has raised $15 million from Kleiner Perkins Caufield & Byers and $2.5 million from John Mack, the former CEO of Morgan Stanley.  Mary Meeker, an investment partner at Kleiner Perkins and former internet equity research analyst at Morgan Stanley, will join Mack on the board of Lending Club.

Lending Club acts as an intermediary of sorts between borrowers and people that want to invest in loans and earn a return.  It provides borrowers with an alternative to traditional bank loans and investors earn a return on a portfolio of loans.  Lending club screens the borrowers by running credit checks and determining the loan amount and terms.  

Venture capital investors in Lending Club include Bay Partners, Canaan Partners, Foundation Capital, Morgenthaler, Norwest Venture Partners and Union Square Ventures.

Links to articles on the financing:

http://dealbook.nytimes.com/2012/06/06/lending-club-reaps-15-million-from-kleiner-perkins/

http://blogs.wsj.com/deals/2012/06/06/lending-club-gets-15-million-backing-from-kleiner-perkins/

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IPO Whisper Estimates Under Scrutiny: Reuters

6/5/2012

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As underwriters guide a company through the initial public offering process, the equity research analysts are busy preparing their financial models and forecasts for the company, which are typically published after the IPO occurs.  However, there is a practice in which the analysts' estimates for the company's future performance are told ("whispered") to institutional investors as part of the roadshow.  With the Facebook IPO, this practice is under scrutiny.  The Reuters article "IPO 'whisper' estimates may be heard after Facebook" is a good summary of the issue and the controversy.  It's a worthwhile read.  Here's the link:   http://www.reuters.com/article/2012/06/05/ipo-whispers-facebook-idUSL1E8GVPHP20120605

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Salesforce.com Acquires Buddy Media For $689 Million

6/4/2012

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Salesforce.com, the cloud computing company, has announced that it will acquire social media marketing company Buddy Media for $689 million in a combination of cash and Salesforce.com equity.  The transaction is expected to close in Salesforce.com's third fiscal quarter ending October 31, 2012.  Here's a link to the press release:  http://www.salesforce.com/company/news-press/press-releases/2012/06/120604.jsp 

With Salesforce.com's recent acquisition of Radian 6, a leading social listening company, and now with the acquisition of Buddy Media, Salesforce.com is moving swiftly into the social media marketing arena.  According to the press release, Salesforce.com is "doubling down on the Salesforce Marketing Cloud to provide CMOs with the ability to manage the entire social marketing lifecycle.” 

Venture capital investors in Buddy Media include Bay Partners, GGV Capital, Greycroft Partners, Insight Venture Partners,Institutional Venture Partners and SoftBank Capital. 

Here's a link to a prior post on the acquisition:  http://www.allenlatta.com/1/post/2012/5/buddy-media-to-be-acquired-by-salesforcecom-reports.html 

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San Francisco Tech Scene Growing Rapidly: Reuters Article

6/3/2012

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As I've posted about before, San Francisco's technology scene is growing rapidly.  Companies including Twitter, Zynga, Yelp, Dropbox, Airbnb, OpenTable, Salesforce.com, Foursquare, Digg, Instagram (and many more) are headquartered in San Francisco.  The Reuters article "Chic Geeks Give San Francisco A new Tech Groove" provides some more insight as to why tech start-ups are choosing San Francisco as their base.  Here's the link:  http://www.reuters.com/article/2012/06/01/us-sanfrancisco-siliconvalley-geeks-idUSBRE85007Q20120601 

Prior posts on San Francisco:
http://www.allenlatta.com/1/post/2012/05/benchmark-capital-opening-san-francisco-office-on-market-street.html

http://www.allenlatta.com/1/post/2012/02/more-on-san-francisco-start-up-scene.html

http://www.allenlatta.com/1/post/2012/02/san-francisco-as-tech-central-uncrunched.html
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Behind Groupon's $6 Billion Brushoff

6/2/2012

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The Wall Street Jornal's article "Behind Groupon's $6 Billion Brushoff" describes how Groupon came so close to selling itself to Google for nearly $6 billion, but ultimately decided not to do the deal.  Good article:   http://online.wsj.com/article_email/SB10001424052702303640104577440580610986086-lMyQjAxMTAyMDAwMTEwNDEyWj.html
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