How Facebook (Groupon, Zynga, etc.) Killed the IPO Market

Posted by on August 22nd, 2012

We’ve all seen how seemingly unrelated events affect one another; a prime example of this is when a tough day at the office makes for an even tougher evening at home for your family.  All too often a disagreement with a co-worker turns into a fight with your wife or one of the kids.  Neither your wife nor kids did anything wrong other than to catch the fallout of a work-day gone bad.

This domino-effect is not limited to the office / home environment as we’ve recently seen in the capital markets.  With great anticipation, the investment community embraced the next generation of Internet sensations such as Facebook, Groupon and Zynga only to see the stocks of these companies plummet to levels well below their IPO price in the weeks and months following their respective offerings.  So while initial backers, management and public investors have taken their lumps, some might say poundings, in the form of lower stock values, the fallout of this negative sentiment has had an astonishingly detrimental effect on the IPO market as a whole.

So while it makes perfect sense that investor appetite for the next Internet IPO has come to an abrupt halt, why has interest in other IPOs fallen off the cliff?  Since when did social media, e-commerce and Internet gaming have anything to do with energy, real estate and healthcare?

The simple answer is that they do not.

It’s a shame that the herd-mentality of the investment banking community is punishing perfectly sound, strong IPO candidates, further stifling the capital markets and ultimately hurting the overall economy.  While it’s understandable that I-bankers remain skittish, it’s equally important for them to judge companies based on their individual merits.

As the saying goes, ‘don’t throw out the baby with the bathwater.’