[aniro]

In this case "extract maximum returns for the early investors" means that a whole lot of people got ripped off.

The notion that "the modern IPO is chiefly about giving early investors and staff an exit ticket" is a near perfect example of how "Silicon Valley, I hate to say it, has its head so far up its ass that it's eating its own bullshit."

The investors purchasing Facebook at IPO and after are not looking to reward early investors or hand some sweet exit to a founder.. they are looking for a return on their investment dollars.

If this is the prevailing attitude regarding the purpose of capital markets in Silicon Valley, I would be shocked if the IPO market for new tech stocks didn't shrivel up and die in the next (last?) few months.

How odd that there is an excellent article sharing the front page about American "Looterism" replacing American Capitalism.

[wkasel]

Well said. You're exactly right. I didn't cover it, but the larger concern I have here is that this misguided approach could lead to distrust from wall street of any tech IPO's that aren't enterprise, or low/mid cap.

[robbiep]

This is not a new phenomenon though. Look at tech bubble #1. hell, go back in time and look at Tulip Mania or the railroad bubble in the late 19th century. Wall Street will continue to do what is in it's interest. With average returns from Underwriting an IPO in the range of 7-9% they have to. Wall Street doesn't care that mum and pop investors get screwed - they just need to know that there are more out there that will continue to buy IPOs if they are presented in the right way.

BTW, IPOs have been in long term decline (in terms of absolute numbers) for ~20 years now - see the economist

http://www.economist.com/node/21555552?zid=300&ah=e7b937...

[aniro]

The gist of that article is that the number of firms going public or using capital markets to raise equity has diminished in favor of private-equity, irrespective of the number of firms in existence.

Most of the reasoning behind it appears to be that the legal system has been modified in such fashion that it favors other forms of firm structure.

Hardly indicative of any natural decline, it would be easy to take from this article that the Pump & Dump style IPOs (and other massive erosions of trust) are strangling the effectiveness of Capital Markets by scaring away investors and inviting increased regulation.

[drumdance]

I think the dot com bubble was the most damaging. Prior to that IPOs were not something the average investor would try to get in to. First day "pops" were modest and the expectation was that a company (even a tech one) should have 8 quarters of steadily improving profits prior to the offering.

[pbreit]

Facebook is a once-in-a-decode or -generation thing. Unwise to extrapolate too far on it.