As Covid recedes from a pandemic to an endemic, a new fever has unfortunately crept up the spines of intelligent investors. It is called IPO fever. Now this is of course selling old capital in a new prospectus. Selling IPO gains as a guaranteed way of earning short-term profits is a trick as old as the hills. A lot like the credit-card salesman at the airport who tells you “free ticket leke baad mein card cancel kardena” (cancel the card once you've got your free ticket).
The typical operating model is to tell you the potential listing gains vis-à-vis the IPO price. But ask any girl who married her college boyfriend because his band was “going to make it”. She could tell you a lot more about IPO bands than I could. The other IPO bands of course are the lead managers blood pressure and cholesterol levels.
Now, traditionally there used to be a fixed IPO price. A lot like arranged marriage in terms of the incredibly narrow bands you were allowed to operate on. And there was immense pressure on you from book managers that all eligible IPOs have already been oversubscribed by the age of 21. At 30 and unmarried, frankly it’s a disgrace they haven’t taken away your merchant banking licence.
Now we have the reverse book building process where both parties can transparently troll each other on social media and arrive at a mutually acceptable valuation. The only thing everyone seems to care about is that the IPO should be a success, never mind where the stock goes and tanks eventually. In some cases, you end up with permanent royalty payments in the form of alimony aka TDS for life.
There has been commotion in the markets in recent times with some big-name IPOs, especially in the tech and startup space, trading at a significant discount from their IPO prices. But if you paid 2400X the sales for a stock just because you thought anything that sounds like tomato is a good investment, then you are exactly the kind of audience this column is looking for before it goes for IPO.
A lot of tech and VC investments in recent times have also been looking at the IPO route as a means to exit their investments. A lot like how the East India Company beat a hasty retreat when its valuations started dipping.
IPOs usually have a red herring prospectus telling you about all the potential red herrings. This is wasted on the same population that ignores all the red herrings in a dating app bio. If the profile says “not looking for hiccups”, you know this is an IPO you must not subscribe to, no matter how much the discount being offered.
VCs also need to consider whether pushing companies to IPO for billion dollar exits is a sane strategy when many of them are still figuring out why their own drivers are trying to cancel them. A market analyst commented: “In the cost at which you are being offered a loss-making logistics IPO play, you could buy every listed stock in the space”. But then I wouldn’t have bragging rights on Twitter, motivational quotes on LinkedIn and emotional atyachaar on Instagram.
Regular readers of this column (who have been added to the mailing list for our red herring prospectus) would remember the previous article where we discussed the Laugh Insurance Corporation IPO. And how laughter is the best investment in volatile times. But you have to remember there is limited allocation for retail investors. Because if you were a Qualified Institutional Buyer, you would not be taking financial advice from this column. If you are an employee, then you should know there is not much to choose between Aesop’s fables and ESOP tables. If you are the government hoping to reduce your misgovernance, then frankly we have seen way too many IPOs soar on listing day only to disappoint in the quarters ahead. And if you are a policy holder like me, then you have an incentive to keep on living so that your death does not affect the stock price.
Now because I am also a poet (in case I didn’t mention it earlier), you could ask me “What is the IPO of life?” Well the answer, my dear Funnycontrollers, is lost in the regulatory winds as we have a new MD and CEO being hunted for the National Spiritual Exchange of India. Who has been host to many an IPO but somehow got a little too caught up in its own spiritual fever.Remember that in the IPO prospectus and road shows, every stock is sold like a blue chip. And every blue tick is sold like a stock. But when it comes to the fundamentals of investing, a good stock is like a good joke. Only those who get it, get it. So don’t lose your chance to get it before anyone else does. And subscribe to the Initial Public Offering of Funnycontrol.