Zynga: IPOs and cashing out The initial public offering market used to be like a slot machine which owners used to cash out their investments. Since the financial crisis began, "skin in the game" has been a must. In theory this is a good idea, but it has gone too far. Listing tiny free floats allocated to friendly investors - at a significant discount to ensure good first day performance - has become the norm. Indeed, last year the average US IPO candidate sold about one-third of its shares, the lowest in a decade, says Dealogic. Some floated even smaller amounts. Zynga, the social gaming group, sold just 14 per cent, and daily deal site Groupon sold only 6 per cent.The problem with listing so few shares is that when the owners look to sell down their stake further, they can appear desperate to rush for the exits. Professional networking site LinkedIn, which sold 9 per cent of itself in a heavily promoted IPO last May, saw its share price plunge 14 per cent in November when it announced the original investors would sell a mere $100m worth. Zynga now faces that situation and is treading carefully. On Friday, three months ahead of the lock-up expiry, it said Mark Pincus, founder and largest shareholder, would sell a 15 per cent block of his shares.Ironically, selling a larger stake at IPO may boost investor confidence as it can indicate the sellers are willing to risk hurting the value of their stake. That is a lesson for the three-quarters of private equity funds in the UK that Grant Thornton says expect to exit more than half their portfolio over the next 12 months. A similar backlog exists in the US and the IPO market will be a key exit route. Some were outsmarted by tiny free floats last year; many of those IPOs are under water. This year, companies should sell a larger chunk of shares to convince investors to buy in - while holding enough back to underline their commitment.