How To Grade This Week’s airbnb and DoorDash IPOs

Using a Weighted Scorecard Instead of Just “Did It Pop or Not?”

Every big tech IPO results in predictable Twitter chatter. If the stock price pops on its first day some folks believe the bankers took advantage of the company because it didn’t optimize the amount of money it raised in the offering. If the stock prices doesn’t pop (or even trades down a bit), they get the ‘damned if you do, damned if you don’t’ outcome of headlines that read “TechCompanyX IPO Meets Lackluster Demand.”

Since two of the largest consumer tech IPOs post-Uber are occurring this week (airbnb and DoorDash), maybe we can short-circuit the simple hot takes with a different approach? I’m going to suggest that any evaluation of an IPO should look more like a scorecard, where you evaluate the company based on the goals of an offering, weighted by their relative importance.

65% Did the Company Raise Enough Money

People usually treat this as 100% and only look at Day One close relative to offering prices as the maximization function question. And while yes, managing the ‘pop,’ is part of this, it’s an overly narrow view. In an IPO the company receives a sum of money equal to the share price they debut at multiplied by the number of shares they sold — aka the float (hold aside the cost part of the equation for now. You can potentially get a high share price by constraining float but that’s more akin to a private offering than public one where you’re looking for the market to price your business. You can also sell a ton of the company to the public, trying to find the true market price for demand.

Rather than focus on just share price though, let’s look at the amount the company raised. Was it a meaningful total, at a price better or equal to what they could have received on the private markets, and how does the company intend to use the proceeds. That’s a harder question than just a “did the stock go up or down on Day One” but it’s the question we should be asking.

25% Did the Company Set Itself Up Well for Year One Performance

One public company CEO I know, upon seeing the pop in her stock during offering week looked and said privately “I didn’t sign up to deliver those numbers.”…