<story><title>TWTR</title><url>http://www.google.com/finance?q=NYSE%3ATWTR&amp;ei=7a97UujgDO-UwQP89AE</url></story><parent_chain><item><author>YZF</author><text>The underwriters who will make hundreds of millions here... (EDIT, well, many millions at least)  What sort of risk are they taking that justifies their rewards and how does it help the economy?  And the individual bankers who will take millions of dollars in bonuses home because they get paid for the 12th time and don&amp;#x27;t get penalized for the 11 others, what sort of innovation did they contribute to the world?&lt;p&gt;I think we all understand the deal with investors who get in early and invest money in something that has a chance to fail will make money if it succeeds.&lt;p&gt;The IPO is a suckers game.  It says me as an insider value the company less then you as an information limited outsider.  If Twitter is worth $50 bucks a share why were its investors willing to part with their stock for $26 a share only yesterday?  Sometimes you can profit even in the presence of this information disparity because the company will outperform its expectations, but now you&amp;#x27;re 1 out of 144...&lt;p&gt;&amp;lt;rant over&amp;gt; :-)&lt;p&gt;EDIT: I think a solution to that is perhaps a combination forcing companies to go public sooner (limit IPO valuations or spread the share sale over longer periods), combine with more limits on insiders, more and earlier disclosure and perhaps combine that with a more KickStarter like model - eliminate the middle man.</text></item><item><author>ChuckMcM</author><text>I think you fundamentally misunderstand the process but that is ok, its not all that straight forward.&lt;p&gt;The transaction here is between risk takers (venture capitalists and investment banks) and risk pricers (people who buy stock). Nobody is getting &amp;quot;ripped off&amp;quot; as long as everyone is following the rules set down by the SEC.&lt;p&gt;Investors put money at risk. You know that because you&amp;#x27;ve been here on HN a couple of years and no doubt read the &amp;lt;foo&amp;gt; is shutting down. stories. For each of those there is usually one or more investors who have put in thousands if not millions of dollars who get anywhere from $0 to some fraction of their investment back. Sometimes, their investment &amp;#x27;bet&amp;#x27; pays off and they get back multiple times their investment. The trick is you blend all of those $0 and multi-X returns and you get their &amp;quot;effective&amp;quot; return.&lt;p&gt;&amp;quot;Joe Public&amp;quot; and by that I assume you mean an unsophisticated retail investor (they aren&amp;#x27;t investing anyone&amp;#x27;s money but their own). Can achieve a similar result by buying &amp;quot;shares&amp;quot; in a fund managed by a banker. When folks ask me where I would put some extra savings I tell them I&amp;#x27;ve been very pleased with the Vanguard funds.  You make more than then .8% return that a Bank savings account pays, and your risk is relatively moderate (but if it is not zero like it is with the savings account). But this unsophisticated person should &lt;i&gt;never&lt;/i&gt; be investing in an IPO stock.&lt;p&gt;The professional managers who invest in an IPO stock may have hundreds of millions of dollars under management. They spread some of those over a number of IPOs as a way to provide &amp;#x27;long kicks&amp;#x27; (which is that the stock is held for a long time and the success provides a large return many years later). Clearly they aren&amp;#x27;t putting their kids college fund in there. And most of the &lt;i&gt;other&lt;/i&gt; dollars in their fund are on much &amp;#x27;safer&amp;#x27; sorts of things, like Coca Cola or Alcoa.&lt;p&gt;So this is the &amp;#x27;cycle of life&amp;#x27; for many new tech companies, and if these investors in Twitter do well their Venture Funds will have a reasonable rate of return, and more rich people will give them some of their &amp;#x27;excess&amp;#x27; funds to invest in other tech companies, and you and I can go get some of that by pitching them a great team and a great idea.&lt;p&gt;So for the 11 times smart people came to them and they gave them millions and got nothing back, this 12th time they got a lot back. Nobody gets hurt as long as the people who don&amp;#x27;t know what they are doing stay out of the game. That didn&amp;#x27;t happen in the late 90&amp;#x27;s lets hope it doesn&amp;#x27;t happen again.</text></item><item><author>corford</author><text>Can someone with more clue please tell me that the following cynical thought I keep having is wrong and laughably misinformed (and then explain why)?&lt;p&gt;Twitter&amp;#x27;s investors (who have plowed hundreds of millions in to a loss making company) decide to sell some of their stock at $26&amp;#x2F;share (after consulting with banks to arrive at this price). This will make right the losses they&amp;#x27;ve experienced so far and pass the problem down the line. The banks buy at $26 and then immidiately flip for north of $40. This lines their pockets and passes the problem down the line once more to joe public.&lt;p&gt;End result: investors in loss making company cover their investment and make some profit, banks make some juicy profit for facilitating the game, joe public swallows the hype and makes the whole dance possible by eventually footing the bill.&lt;p&gt;Edit 1: thanks everyone for the thoughtful replies. I guess I can only continue to feel cynical if I believe that the original investors did all of this knowing full well that twitter never has a chance of living up to its valuation i.e. they just wanted to cover their losses, make a nice profit on top and punt the problem down river. The alternative is that the investors do honestly believe in the future profitability of the company and have decided now is the time to take some well earned profit as a reward for taking the financial risks in getting the company to where it is today.&lt;p&gt;It&amp;#x27;s going to take me some time to make my mind up as to which of those two scenarios I believe.&lt;p&gt;Edit 2: still difficult to understand why the banks have managed to come away with doubling their money though.&lt;p&gt;Edit 3 (final one!): See &lt;a href=&quot;https://news.ycombinator.com/item?id=6691157&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=6691157&lt;/a&gt; for a nice reply that seems (to my clearly very untrained eye) to make the investors motives a little less cynical.</text></item></parent_chain><comment><author>jmackinn</author><text>The undrewriters don&amp;#x27;t always come out doing so well. Take a look at the Facebbok IPO as an example. They didn&amp;#x27;t end up selling all of the stock that was issued in the IPO and had to buy up stock back from the market at elevated prices in order to keep the stock from plummeting on the first day. They still made money but not what they expected.&lt;p&gt;As for the insider vs outsider. In order to issue an IPO, a number of stocks are agreed to be issued. These stock either come from the company issuing more shares and diluting the value to current stock holders and the company receives the money from the new share purchase, or the stock holders offer up some of their stock to be sold in which case they receive the money. I believe is usually mix of the two. The current stock holders don&amp;#x27;t offer all of their shares up. Just enough (I believe this is set by the SEC) to enter the market.&lt;p&gt;The underwriter assumes a large risk and for the portion of the stock that goes through them to market, they are paid the $20 difference ($26 to $46). As well they facilitate the actual sale of the shares. This is not an easy task (again see the technical issues with the Facebook IPO).&lt;p&gt;So in the end the 11 rounds of investors get $26 for some of their shares, in order for the rest of them to be worth $46 or now $50. They are also now allowed to sell those remaining shares on the open market. Something they were not able to do before the IPO.&lt;p&gt;No one is getting screwed here. There is a very big pie, and everyone, from the first investor to the undrewriter, gets a piece.</text></comment>
<story><title>TWTR</title><url>http://www.google.com/finance?q=NYSE%3ATWTR&amp;ei=7a97UujgDO-UwQP89AE</url></story><parent_chain><item><author>YZF</author><text>The underwriters who will make hundreds of millions here... (EDIT, well, many millions at least)  What sort of risk are they taking that justifies their rewards and how does it help the economy?  And the individual bankers who will take millions of dollars in bonuses home because they get paid for the 12th time and don&amp;#x27;t get penalized for the 11 others, what sort of innovation did they contribute to the world?&lt;p&gt;I think we all understand the deal with investors who get in early and invest money in something that has a chance to fail will make money if it succeeds.&lt;p&gt;The IPO is a suckers game.  It says me as an insider value the company less then you as an information limited outsider.  If Twitter is worth $50 bucks a share why were its investors willing to part with their stock for $26 a share only yesterday?  Sometimes you can profit even in the presence of this information disparity because the company will outperform its expectations, but now you&amp;#x27;re 1 out of 144...&lt;p&gt;&amp;lt;rant over&amp;gt; :-)&lt;p&gt;EDIT: I think a solution to that is perhaps a combination forcing companies to go public sooner (limit IPO valuations or spread the share sale over longer periods), combine with more limits on insiders, more and earlier disclosure and perhaps combine that with a more KickStarter like model - eliminate the middle man.</text></item><item><author>ChuckMcM</author><text>I think you fundamentally misunderstand the process but that is ok, its not all that straight forward.&lt;p&gt;The transaction here is between risk takers (venture capitalists and investment banks) and risk pricers (people who buy stock). Nobody is getting &amp;quot;ripped off&amp;quot; as long as everyone is following the rules set down by the SEC.&lt;p&gt;Investors put money at risk. You know that because you&amp;#x27;ve been here on HN a couple of years and no doubt read the &amp;lt;foo&amp;gt; is shutting down. stories. For each of those there is usually one or more investors who have put in thousands if not millions of dollars who get anywhere from $0 to some fraction of their investment back. Sometimes, their investment &amp;#x27;bet&amp;#x27; pays off and they get back multiple times their investment. The trick is you blend all of those $0 and multi-X returns and you get their &amp;quot;effective&amp;quot; return.&lt;p&gt;&amp;quot;Joe Public&amp;quot; and by that I assume you mean an unsophisticated retail investor (they aren&amp;#x27;t investing anyone&amp;#x27;s money but their own). Can achieve a similar result by buying &amp;quot;shares&amp;quot; in a fund managed by a banker. When folks ask me where I would put some extra savings I tell them I&amp;#x27;ve been very pleased with the Vanguard funds.  You make more than then .8% return that a Bank savings account pays, and your risk is relatively moderate (but if it is not zero like it is with the savings account). But this unsophisticated person should &lt;i&gt;never&lt;/i&gt; be investing in an IPO stock.&lt;p&gt;The professional managers who invest in an IPO stock may have hundreds of millions of dollars under management. They spread some of those over a number of IPOs as a way to provide &amp;#x27;long kicks&amp;#x27; (which is that the stock is held for a long time and the success provides a large return many years later). Clearly they aren&amp;#x27;t putting their kids college fund in there. And most of the &lt;i&gt;other&lt;/i&gt; dollars in their fund are on much &amp;#x27;safer&amp;#x27; sorts of things, like Coca Cola or Alcoa.&lt;p&gt;So this is the &amp;#x27;cycle of life&amp;#x27; for many new tech companies, and if these investors in Twitter do well their Venture Funds will have a reasonable rate of return, and more rich people will give them some of their &amp;#x27;excess&amp;#x27; funds to invest in other tech companies, and you and I can go get some of that by pitching them a great team and a great idea.&lt;p&gt;So for the 11 times smart people came to them and they gave them millions and got nothing back, this 12th time they got a lot back. Nobody gets hurt as long as the people who don&amp;#x27;t know what they are doing stay out of the game. That didn&amp;#x27;t happen in the late 90&amp;#x27;s lets hope it doesn&amp;#x27;t happen again.</text></item><item><author>corford</author><text>Can someone with more clue please tell me that the following cynical thought I keep having is wrong and laughably misinformed (and then explain why)?&lt;p&gt;Twitter&amp;#x27;s investors (who have plowed hundreds of millions in to a loss making company) decide to sell some of their stock at $26&amp;#x2F;share (after consulting with banks to arrive at this price). This will make right the losses they&amp;#x27;ve experienced so far and pass the problem down the line. The banks buy at $26 and then immidiately flip for north of $40. This lines their pockets and passes the problem down the line once more to joe public.&lt;p&gt;End result: investors in loss making company cover their investment and make some profit, banks make some juicy profit for facilitating the game, joe public swallows the hype and makes the whole dance possible by eventually footing the bill.&lt;p&gt;Edit 1: thanks everyone for the thoughtful replies. I guess I can only continue to feel cynical if I believe that the original investors did all of this knowing full well that twitter never has a chance of living up to its valuation i.e. they just wanted to cover their losses, make a nice profit on top and punt the problem down river. The alternative is that the investors do honestly believe in the future profitability of the company and have decided now is the time to take some well earned profit as a reward for taking the financial risks in getting the company to where it is today.&lt;p&gt;It&amp;#x27;s going to take me some time to make my mind up as to which of those two scenarios I believe.&lt;p&gt;Edit 2: still difficult to understand why the banks have managed to come away with doubling their money though.&lt;p&gt;Edit 3 (final one!): See &lt;a href=&quot;https://news.ycombinator.com/item?id=6691157&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;news.ycombinator.com&amp;#x2F;item?id=6691157&lt;/a&gt; for a nice reply that seems (to my clearly very untrained eye) to make the investors motives a little less cynical.</text></item></parent_chain><comment><author>encoderer</author><text>&amp;quot;If Twitter is worth $50 bucks a share why were its investors willing to part with their stock for $26 a share only yesterday?&amp;quot;&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Time_value_of_money&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Time_value_of_money&lt;/a&gt;
&lt;a href=&quot;http://en.wikipedia.org/wiki/Expected_value&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Expected_value&lt;/a&gt;</text></comment>