With 2012 coming in as the slowest year for Initial Public Offerings (IPO's) since 2008, business owners who have been contemplating a public offering are trying to decide whether to take the plunge or wait until the pace of offerings accelerates. Part of the blame rests with Facebook's disappointing (aka: failed) IPO last spring which saw shares slump into the teens after being sold to the public for $38 per share. Since making its low at $17.55, the shares have recovered to a current trading level in the high $20's but the IPO market has remained chilly.
Despite this tepid environment for companies trying to go public, the right IPO deal can still get done and the Facebook IPO can teach us a lot about what not to do. Here are some of the errors that were made in the third largest IPO on record.
1) A lack of experience in the team that was put together to take Facebook public – David Ebersman was hired in part due to his "public company experience" but that experience was gained during his 15 tenure with Genentech, which had gone public 14 years before Ebersman joined the company. One of his biggest errors was his over-estimation of demand for Facebook shares, which led to his push for a 25% increase in the amount of shares in the offering a few days before the IPO. This effectively flooded the market and shares took a dive in part due to oversupply.
2) Shares in the offering were structured with voting rights diminished to the point that shareholders had no power to effect change in the company. It was perceived as an act of hubris based on the hype surrounding the offering and led many institutional investors to a decision to sit on the sidelines instead of participating in the offering.
3) Rampant insider selling – In most cases, especially in high-visibility IPO's, insiders are forced to wait for the expiration of blackout dates or for a secondary offering after the IPO is completed to sell their shares. The high amount insider selling in Facebook's IPO looked like a massive exodus to many industry watchers.
IPO's in today's market can be completed successfully by making the right offering and learning from mistakes made by recent predecessors. Working with an experienced group, such as the team led by Dmitrij Harder at Solvo Group can put your company's IPO on the right track and keep it there through its completion. For more information, visit: http://solvogroupinc.com/