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No, I only need to assume that at least some capitalisation comes from people who intend to resell at least some of their commitment relatively quickly in a secondary market.  If their money is left on the table, and it is a significant amount of money, it's inefficient.

Fortunately, that's an empirical question: How much investment into emerging companies came from investors, as opposed to securing a revenue stream from the customers before launch? Unfortunately, I don't have the data at hand to answer that question.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 26th, 2010 at 07:42:21 PM EST
[ Parent ]
There has been a lot written about what an insider scam the IPO is. The company that arranges the IPO makes certain that their clients are able to sell some of their stock at a price that will not again be seen for some time and that other favored insiders get to buy at the initial price and quickly sell at the short lived top. The public gets access at that top and gets to hold the stock until it regains those levels -- if it does. Meanwhile, founders and insiders get to cash out. People complain, but nothing gets done.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Aug 26th, 2010 at 10:18:06 PM EST
[ Parent ]
There's a really simple solution here, which I use. Never participate in IPO's where the current owners cash out. If it was such a good investment they wouldn't sell their shares to you, would they?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Aug 27th, 2010 at 10:43:24 AM EST
[ Parent ]
In the US IPOs are the preferred way for Venture Capital firms to unload their 'stake' and take a profit. It is also a way for the principals of the company to get a 'pay-back' for the work they've done.  Third, it is almost the only way, in the US, employees of the company actually get some economic benefit of the work they've done in relation to the "wealth" or "value" they've produced.  Somewhere down in the basement is getting money for the company to invest in current and future operation(s).  

Have to be a damn fool to buy into an IPO but there seems to be plenty of damn fools running around ... and we know what happens to their money!

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Aug 27th, 2010 at 11:24:14 AM EST
[ Parent ]
There sure is a way to get economic benefit for the work they've put in: sit on the shares and accumulate dividends, and when the company looks over-valued, start selling off your shares.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Aug 27th, 2010 at 02:12:14 PM EST
[ Parent ]
In the US new companies don't pay dividends.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Aug 27th, 2010 at 08:17:53 PM EST
[ Parent ]
Neither do companies around here, not when they're start-ups. But after a few years when the cash flows heads to reasonable levels and the initial debt burden has been reduced, there'll be a surplus available for dividends.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Aug 28th, 2010 at 10:53:28 AM EST
[ Parent ]
Dividends in the US are beside the point.  Microsoft only started paying them in 2003 when they had, from memory, about $30 billion sitting around in their bank accounts.

US stock markets operate under the Greater Fool Theory.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Aug 28th, 2010 at 12:35:00 PM EST
[ Parent ]
As far as I know, the handful of US companies I have shares in all pay dividends.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Aug 28th, 2010 at 12:48:43 PM EST
[ Parent ]
JakeS:
securing a revenue stream from the customers before launch

Ouch. That's tough enough when you have a going concern and an existing product - for example, a manufacturer of bespoke machine tools will be lucky to get 10% up front, the rest paid in installments as milestones are hit over the project period (say, 18 mo.). But an established company can often get financing to cover the cash flow.

It would be damn near impossible for a startup with no track record to finance development and manufacture of an unproven product through advanced sales (unless they're very good at marketing to morons).

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Fri Aug 27th, 2010 at 01:17:29 PM EST
[ Parent ]
Or they manage to latch on to a sovereign revenue stream with relatively relaxed oversight. In the US, this has traditionally been military pork barrel (Microsoft, for instance, started their business in the protective environment of selling to a Pentagon contractor).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 27th, 2010 at 03:12:00 PM EST
[ Parent ]

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