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2019 IPOs… The year (So Far) in Review

You have probably heard the old adage, “sell in May and go away”. And by “old”, I mean that the sentiment, if not the precise wording, has been around markets since as early as the late 1600’s.  The idea is that markets soften in the warmer months, reduced volume lessens liquidity, and the resulting volatility can create trading pitfalls. The notion is statistically supported, but some would argue that statistics can be manipulated. Further, some might assert that the old wisdom no longer applies in the age of massive algorithm-driven exchanges.

 The concept does, much to our chagrin at Iron Edge VC, manifest clearly in the pre-IPO universe. Right or wrong, the leaders of private companies entertaining the idea of a debut in the public markets generally take the summer off. Most years, the first quarter presents a flurry of new issues, then the stream becomes less steady in Q2, and by Memorial Day the sound of crickets is deafening. The only silver lining to these summer doldrums is that they pave the way for a look back at the year’s offerings, with the benefit of an earnings release or two, before things begin to pick up again in the fall.

  Most noteworthy among 2019’s IPO events is Beyond Meat (BYND), which went public in May. Yes, it was just over three months ago that this issue was priced at $25. The stock immediately caught fire, fueled by abundant word of mouth and exposure on the financial news networks, and by talk of a variety of deals with fast food chains. BYND soared as high as $239 last month, and then pulled back at the beginning of August in connection with its earnings release and a secondary stock offering. It is now trading at about $167… a whopping 568% premium over its initial pricing.

 First hitting the ticker in mid-April, teleconferencing firm Zoom Video (ZM) was another “hottie”. ZM surged 72% higher than its initial pricing of $36 on its first day and didn’t really look back. It broke $100 for a spell in June and has since settled in at $93 for the time being… a 160% improvement from the underwriter’s mark.

  Pinterest, Inc. (PINS) threw its hat in the ring on April 18th. This one has been characterized by slow and steady gains. Priced at $19, PINS enjoyed a roughly 25% markup on its first day, and now sits at $35. PINS has not had the benefit (or the detriment, depending on your worldview) of the roller coaster rides that some other recently public companies have experienced. With two earnings cycles in the books since April, PINS has passed the stability test. Its current market capitalization of $18.9 billion is an 89% improvement over that of its initial pricing.

 Ride sharing behemoths Lyft (LYFT) and Uber (UBER) debuted on March 29th and May 10th, respectively. As household names that have become an integral part of our very culture, it was inevitable that these two companies would be the subject of copious attention as they crossed over from private to public. With today’s round-the-clock media reporting, the world seemed to collectively hold its breath when each of these enterprises took its turn to ring the opening bell. Unfortunately for the investment banks tasked with the setting the right price at which to commence trading, this excessive interest and scrutiny can be massively distortive. Reconciling true valuation with the sea of investors large and small and including the anticipated influence of the investing public suddenly seems as challenging as nailing Jell-O to the wall.

 LYFT’s IPO was priced at $72. Its decline shortly thereafter was widely covered, and the earnings announcements that would follow offered little help. After the May 7 release, shares dipped as low as $48 but would recover to $67.50… almost within reach of the IPO number. But the August 7 report resulted in another slide, this time to $48. The stock now stands at $50. Similarly, after a stable May post-earnings period and a selloff to $32 after the August announcement, UBER is currently trading at $33. The silver lining: while early public buyers of both issues may be dealing with some regrets, pre-IPO investors are still sitting on gains. In LYFT’s case, many are still up as much as 114%.

 This is where the lesson resides. There are no guarantees in life, particularly when it comes to playing the stock market. Quite often, though, those who can get in before a company goes public do so at a considerable discount. This can serve as relief from post-IPO weakness like that of LYFT and UBER or, in examples like BYND, ZM, and PINS, it can boost already impressive gains.

 We at Iron Edge VC are proud to have access to a wide variety of private companies’ shares before they go public. If you would like to learn more, or if you know of anybody else who would, please do not hesitate to contact us by clicking “Get in Touch” below.

 As always, shares are available on a first come, first served basis.

5f6e0d464e388c4975685025 Paul Min

Paul Maguire

Founder And Managing Partner