Wednesday, May 25, 2011
It should come as no surprise then that I have been all over the recent IPO of LinkedIn. Most of San Francisco and much of the world is curious to see what will happen with the new wave of social sites and their promise of changing the world for the better. But how do you put a price on changing the world?
That's the challenge an IPO for a company like LinkedIn faced last week. How to price a security for something that no one really knows how to value. So what happened? Well, the initial offering came in way below way investors were willing to pay, LinkedIn probably got screwed out of a big chunk of change, friends of the investment bank handling the offering made a killing, and everyone rushed in to get a piece of the social media action.
Honestly, this whole flub of an IPO didn't really disturb me that much. From all I've read, IPO's are generally a cluster fuck no matter what company and I bank you are talking about. What worries me far more is the discrepancy between what investors in the 'private' secondary market (somewhere around $20-25) were willing to pay compared with what those in the public exchange were willing to pay ($80+). What this shows me is that there really no way to assign a proper valuation to a social network. We are mostly shooting blind. And for some reason, unlike the real world where people will pay less for something they don't understand, in the markets people often pay more. Suddenly a new tech bubble starts to look a hell of a lot more likely.
Sure, this may be a ridiculous oversimplification, but tell me, how much are you and your social network worth? I think we all can agree that it's worth something, but no one knows how much. It's crazy to think we can put an accurate value on a site like LinkedIn so soon. Social media is still in its infancy and there's no telling where it will end up tomorrow, or next week or next year.
If you like to gamble, go ahead and grab a few shares. As for me, I'm going to keep buying objects and stocks I can value. Come to think of it that $3000 bike doesn't sound so ridiculous after all...
Back to the fun tomorrow.