The Art of the IPO

Summer was not kind to Facebook. It was harsher still to Groupon and Zynga. All three companies are new to the public markets. If you were to look to their debuts only, you'd be forgiven for concluding that going public is a raw deal. Each of their stocks, to put it nicely, got hammered between Memorial Day and Labor Day--the US holidays that bookend summer. The Dow, during the same period? It rose 5%.

Going public is as much art as science. And as with any art, discipline and finesse make all the difference between masterpiece and flop. So for every Facebook, Groupon or Zynga, there is a LinkedIn, Zillow or Michael Kors Each entered the market last year. Today, all three have stocks that are up more than 100% from their offerings, more than 90% this year--levels of outperformance that every founder, CEO, management team, Board, underwriting group and investor hopes for from an IPO--keeping the romance of the stock market alive.

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Groupon: The Price of Hubris

When three-year-old Groupon filed to go public in June, market commentators dialed the outrage meter up to 10.

Flashpoints: an aggressive business model, creative accounting, and a track record of cashing-out early investors--to the tune of $1 billion. Further irritants: public puffery from the Chairman and the CEO during the so-called quiet period and August and September resignations of two senior team members--PR Chief Brad Williams and COO Margo Georgiadis--only months after they joined the Company.

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Taking Responsible Investing Seriously

Responsible investing continues to grow up, go mainstream. In September, three events--the publication of two reports and the launch of a new investment product--highlighted the diverse ways in which it's doing so.

Early in the month the UN-backed Principles for Responsible Investment (UNPRI) published its Annual Report on Progress. As this is the fifth year that the six principles have been in place, UNPRI took the opportunity to look back, to review the evolution of responsible investing since the principles were launched in 2006 at the New York Stock Exchange by then-Secretary General of the UN, Kofi Annan.

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Truth, Reconciliation and Financial Markets

In April Bradley Fried, former CEO of the UK arm of South African Investment Bank Investec, wrote an OpEd for the Financial Times entitled Mandela's Lessons in Truth for City High Fliers.

The article came to mind this past Sunday morning, when I received an event invitation via email, tagged by the subject line Will the Finance Industry Destroy America and the Human Soul? A day earlier a small group of feisty protesters had begun to gather at the southern tip of Manhattan. Their goal? To occupy Wall Street. Their demands? Ambiguous, but images of Tahrir Square and general frustration with government, the banking industry and the state of the US economy propelled assembly.

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Innovations in Finance: Minibonds

A small group of UK consumer companies has taken matters into their own hands. Growing, privately held, faced with a difficult credit environment, armed with a base of loyal customers and led mostly by passionate founder-CEOs, these companies have gone straight to the public to raise capital. They've done it in the form of debt, issuing what they are calling minibonds or--in the case of green power company ecotricity--ecobonds.

The pioneer, in 2009, was King of Shaves. Since then ecotricity, chocolate purveyor Hotel Chocolat, retail partnership John Lewis and, this week, foreign exchange specialist Caxton FX have followed. Amounts raised have ranged from £600,000 in the case of King of Shaves, to £50 million in the case of John Lewis. Caxton FX is targeting £4 million.

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Love is the Single Bottom Line

Over the past several years I've followed the evolution of the conversation about Corporate Social Responsibility with great interest. The notion first hit my radar screen when I was an investment banker working with retail companies and apparel manufacturers and Nike was challenged to address working conditions at its factories in Asia.

On a trip to Vietnam in 2003 I had the opportunity to visit several of Nike's plants outside of Ho Chi Minh City.  The company's routine jobs--mostly for women--carried education, health care and meal benefits. When measured against the alternatives I saw in the rest of my travels throughout the country--back-breaking work under hot sun, knee deep in water-filled rice patties--it was hard for me to conclude that Nike was being anything other than socially responsible in its day-to-day operations, creating steady income and positive opportunities for its employees and their families.

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Global Witness's New Ground

Last week Global Witness--an NGO devoted to ferreting out corrupt use of natural resources in developing countries—got its hands on a management report from the Libyan Investment Authority (LIA) and released it to the press. The LIA is the fund through which the Libyan government invested its oil profits—a Sovereign Wealth Fund (SWF).

With just north of $50 billion in assets the LIA qualifies as a top-20 fund in size. For reference--the Abu Dhabi Investment Authority, the world’s largest SWF, has over $600 billion in assets. To make it into the top-10, an SWF has to be larger than $100 billion—other countries with funds in the top-10 include Norway, Singapore, Saudi Arabia and China.

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Take the Money and Run




Such delicious, outrage-inducing, front-page-of-the-NY Post-worthy words. Unexpected that they’d be used in defense of a company—LinkedIn, in this case, following its much anticipated, eye-popping public market debut on the New York Stock Exchange last week. And rather than emanating from the NY Post, the headlines came from former Wall Street analyst, Business Insider CEO Henry Blodget and New York Times Op-Ed columnist Joe Nocera.

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IPO Innovation

I’ve spent many of my spare moments over the last few weeks absorbed by speculation about the current state of the environment for and future of IPOs in the United States, especially IPOs of small, high-growth companies, broadly, and, more narrowly, companies for whom business is about more than just profits.

I’ve taken the opportunity to speak with a number of thought leaders in the space, as well with public market investors who day-in, day-out are active, trading in the market, seeing what’s working and what’s not for these companies in the markets today. And as I’ve researched, talked and considered, the US IPO market has continued its march back—in April more companies filed to go public than in any month since August 2007.

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IPO Stories

Successful IPOs are born of an ephemeral blend of engaging, compelling--and often lively--story-telling, an exceptional, seasoned management team, well-calibrated partners and advisors and savvy--and lucky--timing. Zipcar stirred together a perfect mix of each of those elements when it executed its $175 million IPO last week--more than two times the size initially anticipated when it first filed to go public last year in June--delivering healthy gains to investors in first-day trading.

And this week, hot on the wheels of the Zipcar deal, came the filing to go public by online residential real estate information provider Zillow. The ink is barely dry on the underwriters' check to Zipcar for its IPO proceeds. Zillow has yet to head out on the road to meet with investors. Yet it won't be at all surprising if six months from now a healthy follow-on offering hits the market from Zipcar, while Zillow has either been acquired, pulled its deal or is simmering along as a public company with a stock that is trading sideways.

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What IPO Crisis?

It’s time to debunk the myth that the United States' IPO market is in crisis, declining, in the ICU—or dead.

In February I penned a response to a gloomy New York Times OpEd that claimed, among other things, that the number of IPOs in the US is steadily declining. Since then this reality distortion has been repeated on the pages of the Wall Street Journal in an editorial forlornly titled Whatever Happened to IPOs. And it turns out that the Times and the Journal pieces followed on the heels of an alarmist January article written by well-known venture investor Alan Patricof entitled The IPO Market is Crippled—And It’s Hurting Our Country.

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High Yield

If you invested in high yield bonds in December 2008--when they were selling for 55 cents on the dollar--and you held onto them until now, you participated in one of the strongest performing segments of the market's recovery over the last two years. That's that steep upwards jag in the yellow line on the right end of the chart above.

In 2009 the high yield index gained 57.5%, it gained another 15.2% last year and has already added an additional 3.7% in the first two months of this year. A good chunk of that performance has been driven by the economic and market recovery, but since late summer, with QE2 keeping interest rates depressed, it's also been driven by investors' search for yield in the market.

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Remaining Relevant

Felix Salmon is a finance blogger for Reuters. On Monday, on the eve of Deutsche Börse's official announcement that it would acquire the New York Stock Exchange, he penned a New York Times OpEd, dramatically titled Wall Street's Dead End. His thesis: the US stock market is on its way to irrelevance--and, by extension, we are too.

I see a handful of Felix's points: what the US market is doing (going up, right now) and what the economy is doing (going sideways) seem untethered. And our focus, really, needs to remain trained on the latter, not be distracted by the former.

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Risky Business

On Friday a headline in the Financial Times caught my eye: a day earlier Moody's had announced higher than expected revenue growth for the fourth quarter 2010 and an outlook for another strong year ahead.

This on the heels of Jesse Eisinger's January report that efforts, post-Lehman, to increase ratings agency oversight are quietly fizzling--or at least, stalling out. Portions of Dodd-Frank that were intended to impose greater legal accountability on agencies are currently on hold. Agencies responded to the potential change by refusing to allow their ratings to appear in offering memos, markets seized up, legislators backed down. And in December, in the wake of new fiscal belt tightening, the SEC's budget for the new Office of Credit Ratings was cut.

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Fashion Forward

Late last week Prada announced plans to go public. Rumors had been swirling about an IPO for most of 2010--actually, for most of the past decade. The new twist to the tales told last year was that the Company had decided to list on the Hong Kong stock exchange. And that is, in fact, what it plans to do. This move is either brilliant--or sheer, high-stakes lunacy.

Prada has always been more modern, more futuristic and more willing to take risks--aesthetically, strategically and financially--than other luxury companies. There have been some ill-considered acquisitions and the burden, at times, of an overly leveraged balance sheet. On the whole, however, Miuccia Prada and her CEO husband, Patrizio Bertelli, have done a masterful job of staying relevant and at the forefront of luxury and fashion, while growing Prada from $450,000 in sales, when they took over the company from her family in 1978, to well over $2 billion in annual revenues today.

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No Shortcuts

One of the life lessons I learned as a junior investment banker was, "There are no shortcuts." A corollary to this lesson was, "If it looks too good to be true, it is." These lessons were learned in the late night hours, when I was tired, wanted sleep. If I cut corners and breezed by possible project complications in order to hasten my speed home to bed, inevitably I lost, rather than gained, time and sleep.

On Monday Goldman Sachs announced that they will no longer be offering U.S.-based investors the opportunity to purchase shares in the $1.5 billion private placement they are running on behalf of Facebook. The announcement brought these two lessons to mind.

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Welcome to emotionalINTELLIGENCE, a collection of observations at the intersection of business innovation, culture, finance, leadership and political economy. I have considered writing on these topics for some time. Thanks to creative new thinking about communication, design, borders and business models, old boundaries are dissolving. Leaders in corporations, non-profits, civic and global communities recognize that their organizations can be meaningfully improved by learning from others' successes and cooperating across sectors. People are talking more. Exciting products, programs, organizations and ways of doing business are emerging as a result.

I am powerfully optimistic about these changes. A few publications, news shows, commentators and websites focus on discussion of the positive trends. But too many continue to practice dumbing down the news, rehashing problems over and over and over again. emotionalINTELLIGENCE is my answer to those old-school commentators.

You can learn more about me here. I look forward to getting to know you.