With WeWork, UBER and Lyft fiascos, people are starting to wonder what is going on. Here is my assessment…

In the beginning, there were founders, angels and VCs. Their job was to create a robust fast growing and a profitable company with proven markets. They needed more capital than the VCs could provide to scale up the company. There was also a need to provide liquidity to early players and establish a market value of the company. Hence, an IPO!

Underwriters were needed for an IPO to firmly underwrite an offering. They assessed the market and came up with a market price that they could get behind . They created the demand and built the book of customers.Stocks were then floated at a price which satisfied only half of the demand so there will be demand if somebody flipped the shares. Underwrites were required to stablize the market by stepping in if there was no demand and price started to sink.

I saw this process first hand and it worked like a charm. All this was great as the company’s had a lot of growing to do and a lot of value creation was still to be done. Public investors expected to see a rapid value creation and stock appreciation.

Then came the massively funded Unicorns. They took all the available VC money, then took the wall street money to fund further and they sold in the secondary markets to individuals. The price of the stock had no real meaning as the late stage deals were highly structured and had huge downside protection.

Companies are not proven and are still incurring huge losses. Founders and employees have already been cashed out and are living the rich life. The fire in the belly is extinguished. No more money is available from current investors so stock has to be foisted on the unsuspecting public!

How do you sell such a stock in an IPO? Current and future value is unknown and is very dubious. Stock is already widely held and there are really no buyers left in the market; everybody is waiting to sell!

Is it a fault of Wall Street bankers? VCs? Founders?

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