So true. It's bizarre how journalists report on IPOs. I imagine it comes from the search for an easy narrative (e.g., "Investors raced to shop for SHOP"), but these narratives always miss the point that a pop indicates underestimated demand, not high demand.
Suppose I took Facebook public and sold the company for $10 to my friends, who turned around and sold it for $10 billion. The stock would have experienced a billion-fold IPO, but Facebook would not be happy that they only got $10. The bigger the IPO pop, the more money your company left on the table.
Here's an article I wrote a year ago discussing this very issue: "IPOs: The one topic journalists always get wrong" http://www.tedsanders.com/ipos/
It seems like this is a good argument for not going public. You have to pay a 5% tax to bankers and sell shares to institutional investors at what often appears to be a 50% discount
But liquidity is valuable, and may be worth all the costs. The average P/E ratio for the stock market is ~15, while a small private business will only have a ratio of 3 or 4.
You can't compare the average nonpublic company with the average public company to come to the conclusion that companies should go public. You are including small plumbing businesses, etc. That realistically will never have a chance to go public, with large businesses that were successful enough to go public.
"Facebook would not be happy that they only got $10."
The question I would ask is: "who is it that isn't happy"? Employees? Their stock options are worth the same regardless of what the IPO price is. Investors? Same thing. New investors? They're getting an immediate return. I mean sure, the company doesn't get as much to put in the bank, but ultimately who is upset about that?
The company itself, which essentially just lost the difference in cost between the IPO shares and their actual value in cash.
Okay, if you want to be really nitpicky, they didn't lose quite that amount. But they did lose a substantial amount of cash.
Also, employees are likely hurt indirectly, as they can't sell their stock for 90 days. Underpriced IPOs flood the market with stock, potentially causing the price to collapse (as in the case of LendingClub) before they get to cash out.
Suppose I took Facebook public and sold the company for $10 to my friends, who turned around and sold it for $10 billion. The stock would have experienced a billion-fold IPO, but Facebook would not be happy that they only got $10. The bigger the IPO pop, the more money your company left on the table.
Here's an article I wrote a year ago discussing this very issue: "IPOs: The one topic journalists always get wrong" http://www.tedsanders.com/ipos/