<story><title>TWTR</title><url>http://www.google.com/finance?q=NYSE%3ATWTR&amp;ei=7a97UujgDO-UwQP89AE</url></story><parent_chain><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>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></comment>
<story><title>TWTR</title><url>http://www.google.com/finance?q=NYSE%3ATWTR&amp;ei=7a97UujgDO-UwQP89AE</url></story><parent_chain><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>jonknee</author><text>Only a small percentage of TWTR shares were up for sale in the IPO--there are 544.70M total shares and just 70M were part of the IPO (a little less than 13%). Unless I missed something the shares sold in the IPO were issued, so for example if you were a VC with a million shares of TWTR you would still have a million shares of TWTR (now valued at $45M). The money from the sale will go to Twitter, not an investor. Twitter did &amp;quot;leave money on the table&amp;quot;, but their #1 goal was not to pull a Facebook and have the IPO be DOA.</text></comment>