Wednesday, May 25, 2011

Are LinkedIn's bankers greedy or stupid... or making a market?

A lot has been written about the frothy LinkedIn IPO in the last week and the investment bankers can't win either way but I believe in the end they are doing their job and making a market.

On one end of the criticism you have Evan Newmark at the WSJ saying that IPO buyers are LinkedIn Stupidity. He wrote that "tonight’s IPO buyers need not worry. Common sense generally has little to do with the IPO market – and absolutely nothing to do with the LinkedIn IPO" and accuses Morgan Stanley of jacking up the price 30% at the last minute because they find they can, because of demand, not because of the intrinsic value of the stock.

On the other end you have Henry Blodget arguing that the bankers are screwing the company our of millions of dollars of gain because "IPO "pops" like LinkedIn's--which are generally celebrated as a sign of success--are actually bad: They rob the company and its existing shareholders of cash that is rightfully theirs and they steer it into the pockets of favored money management clients who don't need or deserve it."

In the end the bankers hold all the cards and have to make a risky, gutsy judgement call on what the market will do to the stock the next morning. I've personally been in the situation of negotiating the final price with the bankers - and the allocation to their favorite customers - in the 11th hour. My goal as CEO was to ensure we got the best price we could for the stock we were selling (in our case a 20% uplift to $12 from the original $10) and yet ensure we were not so greedy that we overpriced the stock such that it would drop the next morning - and it was not an easy conversation. (I remember how good the first martini tasted afterwards!)

LinkedIn was the first big, frothy social media company to go public - and it has zero profit in 2011 and slowing growth. It would not be unreasonable to be conservative on the initial pricing, despite the book demand for the shares. Look at what's happening to Freescale Semiconductor today "shopping its deal to investors at a price range of $18 to $20, instead of its original level of $22 to $24." Freescale is selling at a price below what it's private equity buyers paid for it, and lowering the price at the end of it's IPO roadshow.

There is huge psychology in the pricing of an IPO stock, and the capital markets team at the bank are making a future market. If their best customers make money early on in a new stock they are more likely to listen to the bankers when they come around with their next IPO. It's a hustle and whisper - "Hey remember how you doubled your money on LinkedIn on the first day - well I've got another one, it's call Twitter, and it's going to be even hotter. This book is going to be even more oversold." And a terrific first day price gain also attracts uneducated retail investors who think because it's hot today it'll be hot tomorrow.

LinkedIn was probably hot from day one because so many of the potential buyers are also users and experience the value every day. But I had a different experience on the way to having my Simplex stock open at $12 and close at $22 on the first day.

We were half way through the road show - about 10 days of pitching 7-8 times a day at that point and there were no orders in our book. It was May 2001 and there had been no small tech IPOs post dot.com crash so we were breaking new ground and our CSFB bankers and capital markets team were downright skittish.

We were headed to New York and I kept asking the bankers if we had a meeting with Paul Wick at Seligman yet - I knew him and knew he understood our space (EDA) so I was confident he'd "get it" but they could not get him to agree to a meeting. So I called Paul's office, and left him a message personally asking him to take a meeting.

Paul couldn't take a one-on-one but took the unusual step (for such a high profile guy) of coming to an open lunch to hear me pitch. With about 50 people in the room he sat right at the front and watched me intently the whole time. I think he asked one question at the end and then left. I had no idea what he thought - good or bad. It was intense.

But according to the CSFB sales team Paul left the room, walked up to the sales guy and said "I'll take 1 million shares" (this was out of a float of 4 million we were selling). And that set the snowball rolling. The sales guys whispered to their clients "Paul Wick is in" and within a couple of days we were 11X oversold - creating the market for our stock in the days following the opening.

That is the bankers job. Connect the company with institutional shareholders who have the capacity to buy on the IPO and some will flip and some will accumulate in the first few hours of trading. And it's what Morgan Stanley et al just did for LinkedIn, and more importantly what they just did for the next ten hot new IPOs from Silicon Valley that want to raise money in the public markets this year.


Me with my management team (Luis Buhler and Aki Fujimura) on May 1, 2001... finally relaxed after pricing at $12, and before heading to New York to watch the stock open... and climb to $22 on the first day.

Wednesday, May 18, 2011

The emergency room is NOT health insurance

At dinner with a group of silicon valley executives a few nights ago, the only woman (as usual) and, as the conversation progresses, I learn the only Democrat at the table.

A debate on health care ensues. Obama-care, can Mitt Romney get elected because he is tainted with the same brush etc. Someone at the table (not me) says it is a crime that 55 million people in the US do not have health insurance.

And one of the gentlemen says "Of course everyone has health insurance - it's called the emergency room".

Well, I am ashamed to say, I jumped down his throat. And said ...

"That's insane. In my case I have had strokes, and without anti-coagulants would probably have another stroke because I have a bad gene. My preventative medical costs are $450 once a year for my visit with the neurologist and $249 a month for my medication. So $3,438 a year if my insurance chose to consider my condition pre-existing.

In your worldview, were I unable to afford the preventative care, my "insurance" would be wait for my next stroke, go to emergency as I am having a stroke - maybe become paralyzed or lose critical function (or die which I admit would be cheaper) - certainly stay in hospital for a week or two - run a large number of very expensive tests - shoot me up with expensive anti-cogulants to try to disperse the clot and then use medicare to pay for ongoing therapy and recovery. I went through that process twice already when we did not know what was the underlying cause and it is very, very, very expensive. I was one of the lucky ones that I did have good health insurance at the time

Do you seriously believe what you just said?"

Yup. Feisty on that issue clearly.

Sunday, May 8, 2011

Living the Social Network: a Silicon Valley cliche

The Rosewood Hotel sits in the perfect location. At the intersection of 280 and Sand Hill Road with beautiful views of the Portola Valley hills it's surrounded by sleek offices dedicated to making money. The who's who of venture capital, private equity, and now even tech centered hedge funds for the guys who want to be where the real action is (and that's not New York if you are a geek investor).

On any given evening the people watching in the Rosewood bar is better than any movie. Take an evening a week or so ago. To my right a group of Justin Timberlake knock offs - all white young men, 30-ish, dark shirts, dark pants and one even had on a fedora (I thought he was trying a little too hard). These are probably associates from a local private equity or venture capital firm - MBAs from the best schools apprenticing at the feet of the masters. Looks, brains and confidence - making money but less knowledge than they think.

After a while two women approach them, very tight white jeans, high heels, the requisite small slice of midriff showing below deep cleavage. Long hair and on the prowl for customers. A toss of the hair subtitle "have you noticed me yet"; a well practiced eye lock and knowing smile subtitle "I find you attractive and am available"; and next thing you know they are sitting snugly on a small sofa with money.

To my left a man walks by to greet the waitress with a knowing hug and a pat on the butt. Dark tan, shirt unbuttoned showing chest hair and a gold medallion. Thinks he's a player but I doubt he is - he's prowling.

In contrast standing in front of me are very young interns. 20-ish, skinny boys and girls, in cheap, ill fitting suits (short skirts on all the girls) clustered together drinking expensive drinks they can't really afford. But no worries, there is usually a partner or two in the mix hosting them. They are earnest, ambitious and often an easy mark. The friend I was with is a wealthy partner in a prestigious firm and he sized them up with a practiced eye - giving me a hilarious commentary at the same time.

It's not all about sex and entertainment. There are the two serious VCs sitting at a cocktail table outside under a heat lamp. They're older - in their late 40s - and oblivious to everyone around them as they hammer through how to get a stumbling deal funded. If you listen carefully you hear talk of pre-money valuation, revenue run rate and dilution. Many a deal gets done on a hand shake in places like this.

I bump into a friend who is a partner at a household name law firm - although the lawyers are usually pale and tired - they don't get out much when the Valley is as hot as it is right now.

The place is packed and the air is on fire - talking, flirting, drinking (vastly over-priced drinks), deal-making -- many are there to experience Silicon Valley, to find the next big thing and ride the wave. The movie captured it well, and made it a cliche. It was like this in 99, again in 07 and now again in 2011. Wild, geeky and the real money is being made by the facilitators - the investors, lawyers, bars and entertainers all preying on the brains who hope to come up with the next big idea.

And me? The Rosewood bar is on my way home from the office, has terrific olives, and is a convenient place to meet my Palo Alto friends. I don't go for the buzz and the people-watching, do I?

Tuesday, May 3, 2011

Women want to make money too - and this is news?

In a world where women still make less money than men for the same job, iVillage and Today.com have released a survey that shows - shock horror - that salary is the most important criteria for a woman choosing a job.

"97% of working moms surveyed saying that salary is most important to them, followed by a family-friendly work environment (91%), job enjoyment (91%), flexible hours (86%), a short commute (83%) and health insurance for the family (81%)".

Why is this news?

The report attributes this to "today's fragile economy" and this infuriates me. Women are equal in the workplace and, like men, are ambitious, want to make money and want to grow their careers. The desire to make money has nothing to do with the "fragile economy" and everything to do with professional women finally coming of age.

Why do women continue to perpetuate the worldview that women are not as mercenary and tough as men? Lisa Barone of Outspoken Media wrote a hilarious "Letter to Women in Tech, I Let You Down" where she writes that she never got the memo to be meek and weak. The perpetuation of the concept that we are in any way less able or less ambitious is women hurting women for no good reason at all.

I certainly never thought for a moment that I would not succeed, make equal money, run the meeting, set the strategy, lead the company - why wouldn't I? Because I don't have a Y-chromosome? Seriously?

It is true women have to work hard. In our society they still do the majority of the household chores. As the iVillage survey reports "All moms, whether they are working or not, continue to be responsible for the majority of the household chores. In two-thirds of dual working families, moms are responsible for 75% or more of all the household chores, with 97% of those surveyed responsible for half or more of the duties in the house."

Yes, a harsh side effect of the aforesaid missing Y-chromosome today but get over it ladies. Like breastfeeding in the middle of the night there are some things that are not going to change in our generation so the best strategy is deal with it, let the dust bunnies build up and, when you can, pay for extra help around the house. Now I have a cleaning lady; when my kids were little and I was taking my company public I had two nannies working shifts - and surprise, surprise my kids are just fine.

Yes I had moments of guilt but I want to be a role model to my daughter and every other nerdy, techy young woman out there that they can be anything they want to be - and yes still be happy and have a family. Technology is a fantastic place to grow your career as a woman because, in the end, all that really matters is how smart you are when you are architecting systems and writing code.

We must keep going and get all the way to the top. Women are still scarce as CEOs (especially in tech!) and in the board rooms which are still Male, Pale and Stale - as reported by BNET and Catalyst - and this is a direct result of the low numbers of women in the top jobs. There are enough women at the top now to show young women coming up that there Are No Limits.

I refuse to apologize for being an equal member of society and for wanting the same opportunity as any man. I expect to compete - I'd want no less. I watch men compete hard and ferociously for advancement and so should we. And when we win it's not news. It's expected.

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