Wednesday, January 05, 2005

Will we do things differently this time?

Google has been credited with putting the fire back in to the IPO market again. Indeed the San Jose Mercury News recently described last year as being split in to two eras - BG and AG... Before Google and After Google. Such was the impact of the Google IPO that it has put IPOs and more importantly tech IPOs back on the map. The Merc's article went on to say that Nationally, last year's IPO crop was the largest since 2000, just before the painful bursting of the Internet stock bubble. More than 230 companies in a wide array of industries took the IPO plunge, raising a total of $44.5 billion, typically used to build their businesses, cash out insiders or pay down debt. That was nearly triple 2003's 81 deals, not counting some top-performing deals out of China in 2004, such as job-search company 51Job, online game company Shanda Interactive Entertainment and telecom company China Netcom.

The rush of IPOs is perhaps not that surprising given that the number of startups didn't decline as much as the stock market and the need for capital from public markets didn't vanish. So at some point all that pent up demand had to be fulfilled. Whether this last does of course remain to be seen.

The piece that interests me is whether the resurgence of the IPOs will change the way people deal with benefits such IPOs bring. In the boom years people rode their companies stock to the moon and most then clung on as they hurtled back to earth. I've noted a few people quietly leaving Google lately (A Google employee with 10,000 options priced at $30 will have made a cool $1.6m profit at today's stock price). Not all IPOs have been as succesful as Google's but will the recovery of IPOs mean that this time people are simply going to cash out and get out as soon as some value has been built? I suspect many will do this, especially those who lost their paper millionaire status in the crash. After all when the market was always going up we all knew we'd be mad to sell. When things crashed???

So what will this mean? Well if it does act out as I suggest then we'll see a very unstable market. We'll see people getting out as soon as stocks float and hit any of the projected prices analysts are forecasting. Is there a way around this? Well of course we could all become practical and take a more analytical view of the world and hold on to the stock we are sure will continue to rise.

Now if only we knew for certain which one that was....

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