Gurley calculates Silicon Valley companies lost $171 billion over 39 years from IPO underpricing between offering and first-day close.
“And so over thirty nine years, that's been a 171,000,000,000 for Silicon Valley companies, and it's been increasing lately.”
Gurley states Silicon Valley lost $171 billion to IPO underpricing over 39 years, $6 billion year-to-date.
“over thirty nine years, that's been a 171,000,000,000 for Silicon Valley companies, and it's been increasing lately. Just year to date, we're at 6,000,000,000 in underpricing.”
Gurley reveals IPO underwriters target 20x overallocation, meaning they intentionally ignore 95 percent of stock demand.
“So 20 x over supply is a euphemism for we're about to ignore 95% of the demand for your stock.”
Gurley says retail gets only 5% of IPO allocations while handful of top accounts capture $171B transfer.
“So the people that are getting that cheap stock, that 171,000,000,000 of of value transfer is a handful of the best accounts of the best client.”
Gurley quantifies Silicon Valley IPO underpricing at $171 billion over thirty-nine years based on day-one price jumps.
“So the first slide is about underpricing, and this is solely looking at the difference between the price that the stocks handed out to the night before and the close the next day.”
Gurley finds the top-tier investment banks deliver the worst IPO execution despite being most prestigious.
“What you see is that no one questioned to the two best investment banks are. So it turns out that if you go with the best investment bank, you get the worst execution.”
Gurley states IPO underpricing totaled $24 billion in 2020, up from $6-7 billion prior years.
“Ironically, you know, in year to date, 2020, the total underpricing dollars on the traditional IPO is $24,000,000,000 And it was in the 6 to 7 range the past two years up from three the year before.”
Gurley characterizes the average IPO underpricing as a $200 million unnecessary tax.
“So you have a $200,000,000 tax to go public through the traditional IPO route, which is completely unnecessary.”
Gurley links decline in public companies to $200 million average IPO underpricing tax.
“And you ask, well, why is that? Well, the average IPO this year had to underprice by 200,000,000.”
Gurley calls the average $200 million IPO underpricing an unnecessary tax on going public.
“Well, the average IPO this year had to underprice by 200,000,000. So you have a $200,000,000 tax to go public through the traditional IPO route, which is completely unnecessary.”
Gurley says Snowflake's underpricing alone transferred $4.5 billion to allocated investors overnight.
“Snowflake alone was 4,500,000,000, just one company. And so the day after the IPO, the people that were allocated the stock the night before have 4,500,000,000 in wealth they didn't have before.”
Gurley states venture-backed IPOs left $6 billion on the table in underpricing over two years.
“So last year and the year before, there were about $6,000,000,000 in underpricing across all of venture backed companies. Jay Ritter at the University of Florida aggregates this data.”
Gurley argues IPO allocations transferred $4.5 billion in wealth from Snowflake to allocation recipients overnight.
“And so the day after the IPO, the people that were allocated the stock the night before have 4,500,000,000 in wealth they didn't have before. And that money didn't just come out of nowhere.”
Gurley states 2020 IPO underpricing will exceed $34 billion in one-day giveaways, predicts fiduciary duty lawsuits.
“This year, it's gonna be over $34,000,000,000 in one day giveaways. You know, if you you wanna talk about legal issues, I think people are gonna come after boards, for fiduciary duty violations”
Gurley cites IPO underpricing growing from $2B in 2016 to $30B in 2020, with one deal losing $9B.
“Last year, 30,000,000,000. So the problem's getting ginormously worse. And then yesterday, on the Hong Kong exchange, Kuaishou, $5,000,000,000 deal, $9,000,000,000 underpricing on one deal.”
Gurley provides IPO underpricing data showing escalation from $2B in 2016 to $30B last year.
“under first day under pricing in 2,016, 2,000,000,000. 17, 4,000,000,000. 18, 7,000,000,000. 19, 9,000,000,000. Last year, 30,000,000,000.”
Gurley argues banks advise 30x oversubscription, contradicting four hundred years of economic principles on supply and demand.
“And no one, no one in four hundred years of economics would suggest that the best practice would be to have a 30 x supply demand imbalance.”
Gurley says investment banks advise companies to be 30x oversubscribed, contradicting four hundred years of economics.
“Look the modern day best practice that the banks advise is they tell you you want to be 30x oversubscribed.”
Gurley cites IPO underpricing rising from $2B in 2016 to $30B last year, showing the problem is worsening.
“under first day under pricing in 2,016, 2,000,000,000. 17, 4,000,000,000. 18, 7,000,000,000. 19, 9,000,000,000. Last year, 30,000,000,000. So the problem's getting ginormously worse.”
Gurley cites Kuaishou's $5B IPO with $9B underpricing as extreme example of the problem.
“And then yesterday, on the Hong Kong exchange, Kuaishou, $5,000,000,000 deal, $9,000,000,000 underpricing on one deal.”
Gurley argues no one would choose traditional IPOs anymore because in 2020 the average IPO was underpriced by 50%.
“I think to the extent that we can effectively integrate raising primary capital with the direct listing, no one would choose a traditional IPO process anymore because it's gotten perversely worse in 2020, the average IPO was underpriced by 50%.”
Gurley states 2020 average IPO was underpriced by 50 percent, a massive cost of capital.
“In 2020, the average IPO was underpriced by 50%. You go to any finance school, they tell you you should care about the cost of capital. They teach you about weighted average cost of capital.”
Gurley states that IPO underpricing has transferred $200 billion over forty years, $30 billion in the last year alone.
“And that number's 200,000,000,000 over the past forty years, 30,000,000,000 just last year. So it's actually gotten worse.”
Gurley calculates that average IPO underpricing of 50% plus 7% fees equals a 57% cost of capital.
“So last year in 2020, the average IPO was underpriced by 50%. If you add in a 7% fee on the investment bank, that's a 57% cost of capital.”
Gurley calculates 2020 average IPO had 57% cost of capital from 50% underpricing plus 7% bank fee.
“last year in 2020, the average IPO was underpriced by 50%. If you add in a 7% fee on the investment bank, that's a 57% cost of capital.”
Gurley cites data showing IPO underpricing plus fees creates a 33% cost of capital for going public.
“Jay Ritter rerun the data. Is there up 25, 26% underpricing? You add in the 7% fee and you're like a 33% cost of capital.”
Gurley cites research showing IPO underpricing plus fees creates 33% cost of capital.
“I had my friend Jay Ritter rerun the data. Is there up 25, 26% underpricing? You add in the 7% fee and you're like a 33% cost of capital.”