[chollida1]

The banks backing spotify made about as much from their "non IPO" compared to what they would have made from a traditional IPO so I don't think too many bulge bracket banks are worried about this trend.

https://www.bloomberg.com/news/articles/2018-03-26/spotify-l...

> Avoiding the lock-up period was a very important part of our decision to list Spotify directly, but there were also clear financial benefits.

This was listed as, I think, a positive but I see it as an extreme negative. Why invest in your company if you don't have the conviction that it will be worth more 3-6 months from now.

> Think of it this way: the bigger the first-day gain in the closing price of your newly-issued stock, the higher the “cost” of your IPO. The investors who bought shares before the market opened pocket the gain in the stock price, instead of the company.

I think they are right but they really have no proof that they avoided the IPO pop discount. They actually opened trading at $165.90 and closed at $149.01.

What's to say that if they followed a traditional IPO the wouldn't have gone public at the same price but had a bank to back stop their share price at that level. The counter argument would be that they might have sold shares lower and had it float at $165.90 but we'll never know:)

one other thing they mention but should be highlighted is that most companies that go public sell new shares to the public, ie they raise money. Spotify didn't, as they didn't need money. This is more common these days due to the huge amount of money sloshing around looking for returns > 4% but its still the exception for most companies that go public while still loosing money.

[btilly]

This was listed as, I think, a positive but I see it as an extreme negative. Why invest in your company if you don't have the conviction that it will be worth more 3-6 months from now.

You are thinking as a potential new investor, and your interests are not aligned with employees and early investors.

Employees and early investors have had what is likely to be a large fraction of their net worth tied up in one company for a long time. They have a clear incentive to take some of that money out and diversify their risk. You, as an outside potential investor, are looking to put a small fraction of your net worth into a hopefully good opportunity.

Yes, you would like to believe that everyone who owns the stock believes in it with their heart and soul, and wants to invest in it forever. And yes, you would like to have the supply of stock limited as long as possible by keeping insiders out of the market. While you're continuing to wish, you'd wish that all employees were happy, and productive, with no desire to ever do anything by slave away creating value.

None of these wishes are reasonable from the point of view of real people who have sacrificed years of their life creating the company that you're looking at.

I think they are right but they really have no proof that they avoided the IPO pop discount. They actually opened trading at $165.90 and closed at $149.01.

You are trivially right that they can't PROVE that they would have had to pay a pop discount the other way, but the odds are that they would have. Typically the pop is 15-30% on the first day. That's a lot of money.

[chollida1]

Maybe I wasn't clear but I don't think I ever setup the straw man you knocked down saying an employee shouldn't ever be able to sell.

All I said was its very reasonable, as evidenced by the fact that every IPO over the past 40 years has had a lockup, to have a 3-6 month hold period for existing share holders when you go public.

That's it. I( and GOOG, FB, AMZN, SNAP, and the rest of the entire tech community that went public ) all believe that a 3- 6 month hold window is a very reasonable ask given that they all had one.

Sorry if I confused you, I hope this clears things up:)

[btilly]

You did not fully set it up. However you did say, in so many words, that having insiders wanting to sell is a very negative sign about the company. And said it criticizing the lack of a period where insiders were locked out of the market.

It is normal for banks conducting an IPO to want one set of things, and for early employees and early investors to want another. Both lockup periods and a chance to have an IPO pop are things that banks conducting an IPO want to have. The company itself has no desire for either, but are pushed into them.

It is normal to hand over as much as a quarter of a company's value to rich people who are lucky enough to get into an IPO. It is normal to force early employees to stay out of the market for an extended period of time. I personally know a number of people who during the dot com crash wound up with a tax bill that exceeded their salary and no way to pay it. (Their company IPOed, thereby locking them in under AMT rules. By the time they could sell, the dot com crash had happened and they didn't make enough to pay their taxes.)

The fact that these things are normal does not mean that they are fair and reasonable. Just that they are business as usual.

It is no surprise that a company which bucked Wall St on one issue would challenge both of them.

[aqme28]

If you're worried about employees unloading shares and tanking the price, then hold off for a few days and buy the stock at a discount.

Historical use of a lockup isn't a reason to continue doing them.

[Illniyar]

>Why invest in your company if you don't have the conviction that it will be worth more 3-6 months from now.

errr... they do, but they also want to buy that apartment or car that they held off on, or pay off loans they took. Employees and founders don't sell all of their stock.

Not to mention that regardless of personal convictions, as an employee or founder you'd like to diversify your investments.

Is it reasonable for investors to want a lock-up period - sure, but the fact that the company would prefer not to have a lock-up period shouldn't really be a red flag.

[will_brown]

Interesting article you posted. I’d never stopped to wonder the investment bank fees for underwriting an IPO and I expected millions but ~$50M was unexpected.

Not to be that guy on HN but it would seem this is the area should leverage blockchain to do a public offering (ICO for equity) and show how blockchain/tokens could be used to cut out the investment banks and save a company $50M on a public offering.

[unignorant]

Yeah, this is something many people are excited about. We are doing a public security offering along those lines at NEX.

[stanleydrew]

>> Avoiding the lock-up period was a very important part of our decision to list Spotify directly, but there were also clear financial benefits.

> This was listed as, I think, a positive but I see it as an extreme negative. Why invest in your company if you don't have the conviction that it will be worth more 3-6 months from now.

This is silly. You could make the same statement judging employees for selling at any arbitrary point in time. So why not lock them up for a year? Why not two?

Founders and executives of very successful private companies sell shares during Series B and later rounds, and yet the new investors in those rounds are willing to buy them at close. Are those new investors fools to pay off founders without conviction?

[alehul]

> Why invest in your company if you don't have the conviction that it will be worth more 3-6 months from now.

On the contrary, investing in a newly listed company that still involves a lot of employees locked up in the company's stock is a scary proposition. Who knows how many will sell immediately when they're permitted to, and the share price will likely be discounted by investors accordingly.

[docker_up]

> Why invest in your company if you don't have the conviction that it will be worth more 3-6 months from now.

This is a nonsense statement. Companies control their revenues, profits, budget, etc. They have very little control over their stock price, and they especially have no control over short term stock prices, like 3 to 6 months. Companies should be focusing on the long term and not looking at the stock price, but employees care about liquidity.

[rfinney]

>Why invest in your company if you don't have the conviction that it will be worth more 3-6 months from now.

Because you think it will be worth more 3-6 years from now.

[Legogris]

...In which case you as an investor should be even less concerned with lock-in over 3-6 months.

[beavisthegenius]

It's to reward employees who may need to sell stock based compensation to pay bills and other things that require currency.

[gwbas1c]

> It's to reward employees who may need to sell stock based compensation to pay bills and other things that require currency.

Don't spend money before you have it.

On the other hand, equity is worthless until it's fungible. Fungibility problems turn into retention problems. Otherwise, the company has to pay large bonuses to key employees who may decide to cut their losses.

[tetromino_]

> Don't spend money before you have it.

Sometimes it can be hard to time your expensive emergencies. Drunk drivers, cancer cells in a loved one's body, natural disasters, and law enforcement officers having a bad day rarely wait for the moment when your assets are at their most liquid.

[gwbas1c]

That's why you buy insurance and live within your means.

[will_brown]

>Don't spend money before you have it.

That’s what the employee equity is in the first place...a way for the startup to spend money it doesn’t have to get the employee. The employee, in theory or at least tech anyway, is sacrificing a better salary at an established (likely public) company to join the startup in exchange for that small chance they make it up with the equity on the backside.

Although everyone loves to pretend the US is a Captialist system...it’s not, it’s debt driven. The entire Country is premised on spending money it doesn’t have in hopes the can turn profit before it all crashes, and that is reflected in every single high-growth tech startup seeking to IPO.

Want the employees to hold on longer for benefit of investors...change the whole system and reverse the tax rates of wages and capital gains. Why should the hard working employee pay 40% of their wage to Uncle Sam while the investor who sits on their ass pays 10% so long as they can hold on for a year?

[beavisthegenius]

In theory, an 83b election should be looked at for any restricted stock grants to minimize the ordinary income tax issue you describe. I know it's not always possible.

[kelnos]

Most employees who are granted equity have no desire to be an investor in their company. They view their equity as a potential bonus somewhere down the line. Sure, many employees will hold some of their company stock for a while after going public, but for most employees, they'd be financially irresponsible to tie up most or all of their net worth in a single company.

[s73v3r_]

Someone who works for a startup has already been "investing" in their company for over 3-6 months by the time the company gets to IPO. I find it quite unconscionable that they should be prevented from realizing the fruits of their labor.

[ObscureMind]

> I think they are right but they really have no proof that they avoided the IPO pop discount. They actually opened trading at $165.90 and closed at $149.01.

Incorrect. They opened at $120, jumped to $165 then dropped to $149.

[chollida1]

Umm

NYSE set a reference price of $132

Shares made their debut with an opening price of $165.90

Shares peaked at $169 shortly after trading began

Shares closed at $149.01

https://www.fastcompany.com/40554046/heres-how-spotifys-stoc...

[jiveturkey]

> if they followed a traditional IPO the wouldn't have gone public at the same price but had a bank to back stop their share price at that level.

TFA:

> At Spotify, we chose more of a free market approach.

and

> we didn’t need to raise capital to fund our growth.

These are the 2 key points that people are going to miss. The reason to use a bank to underwrite your IPO (and make the market) is to backstop the price. The company isn't "leaving money on the table" when they price "too low" and miss the first day pop. They are buying insurance against internal pricing error.

I would like to see an independent analysis, not a supporting article from the CFO of the company that could afford the risk.

Please excuse me if my own armchair look at it is hopelessly naive.

[hogwild]

People don't generally invest all their money in one company regardless of how confident they are in it.

[sova]

[citation required]