In case you’ve been living under a rock, the hot IPO news this year is that both Lyft and Uber are going public (along with other mega-IPOs Pinterest (PINS) and, probably, Palantir) — Lyft (LYFT) is already trading and generated a lot of excitement on the first day, though came back down sharply almost immediately, and Pinterest (PINS) just started trading this week and is doing very well.
Lyft and Uber are huge and unprofitable companies, with arguably no rational path to profitability in the next few years other than “fix prices” or “screw over drivers,” but they are also operators of fantastic and very popular services that almost every urban American relies on to some degree, and they are the biggest “brand names” to hit the IPO market in years. And they’re big — Lyft went public at a valuation of $20+ billion, Uber is hoping to go public at a valuation of over $100 billion, a step down from their last private market “valuation” of about $120 billion but still impressive.
And, yes, investors love IPOs. Probably more than they should, given that the real purpose of an “IPO” is usually as much “Employees and early Backers Want to Sell” as it is “We Need Capital for our Amazing Growth Plans,” but we all still remember the go-go days of the late 1990s when getting a piece of a dot-com IPO might give you 500% returns in a week, and there’s something universally appealing about being first. People still line up at the Apple store for the latest model on the day it’s released, and people still want to buy IPOs on the first day.
So it’s understandable that newsletters have often found that promising access to “Pre-IPO” shares in exchange for a subscription payment is an appealing enough offer to get possible subscribers off the fence and pulling out their credit cards. We’ve written about these a few times, so I thought I’d update my thoughts by checking out the latest teaser pitch along these lines from Ian Wyatt.
Here’s the headline from Wyatt’s “webinar” pitch, where he sells you on viewing his free live presentation… which, I am pretty sure, is going to pitch the same kind of “pre-IPO” investments he has touted before.
“Secret “Back Door” For Grabbing Uber Shares BEFORE the May 10 IPO…”
“How to BUY Pre-IPO shares of Uber and Palantir… just days before the company goes public…
“How to become an “insider” – investing alongside Wall Street bankers and billionaires!
“The secret backdoor that I’ve used to scoop up Pre-IPO shares of billion dollar tech companies.”
So no, I confess, I won’t be participating in the “live presentation” later today… though I have sat through a couple of his similar presentations in the past. So I’m just going to assume that he’s again pitching his Million Dollar Portfolio, as he did with similar “webinar” presentations touting ways to get in early on the Spotify IPO almost exactly a year ago and the Lyft IPO earlier this year.
So here’s my assessment of what his pitch probably covered…
Wyatt is almost certainly going to again be touting the major publicly-traded venture capital funds again — those are, on the exchange-traded side, GSV Capital (GSVC), which was an owner of Lyft shares (but not Uber), and Firsthand Technology Value Fund (SVVC), which doesn’t own any of the high-profile expected IPOs of this year… and on the mutual fund side, the SharesPost 100 Fund (PRIVX), which currently still lists Lyft as its largest holding but does also hold some Pinterest (PINS) and Uber shares (not many). Other likely high-profile IPOs in the near future like Palantir are also holdings of some of these funds, along with dozens of venture-backed companies that most of us have never heard of.
GSVC and the PRIVX fund are the most noteworthy publicly-available owners of the higher-profile companies as of now (SVVC doesn’t own Uber, Lyft, Palantir or Pinterest), though that doesn’t mean they’re going to surge higher instantly. These are diversified investment funds, and the returns are not going to be earthshaking for any of them just because of any possible “pop” in the value of Uber (or whatever the next “hot” IPO is). The biggest impact on them was Lyft, since both GSVC and PRIVX had LYFT as a very large holding before the IPO, but even that was pretty limited and none of these funds have a large enough Uber stake to make a meaningful impact.
Should you want to get exposure to those names? Well, that’s a different question. The same thing has happened with GSVC and SVVC in the past with the Facebook IPO, then the Twitter IPO, and if you had bought into GSVC back in 2012 because of that enthusiasm and held onto the shares, you would have lost a lot of money buying into previous spikes in the the “price to book” valuation.
Of course, during the pre-Facebook and pre-Twitter runs in 2012 and 2013 GSVC traded OVER book value, not just at a smaller discount, so things might not be as dramatic… but they have clearly been challenged to turn a few good early investments in successful companies into shareholder returns, and long-time shareholders have lost a lot of money.
That’s not just to pick on Wyatt, who has touted this fund many times. I’ve owned GSVC in the past, tempted by huge discounts to NAV, but it didn’t particularly work out well for me, either… but looking at funds like GSVC at huge discounts before a mania emerges about some high-profile upcoming IPO works out a lot better than buying during that mania at much higher prices. If you want a lot of exposure to Uber for the long term, just buy UBER shares once the stock is trading — you will likely pay more than the early investors did, maybe even more than PRIVX paid for their stake in recent years, but you won’t also be saddled with their management costs and the 30 companies they own that you don’t care about.
Or better yet, wait it out and see if Uber shares collapse in a few days like LYFT did, or in six months once the lockup expires and insiders start selling, or whenever people move their profit lust on to the next shiny object or the first wave of ugly news hits the shares.
It’s very rare for the IPO price to be the all-time low for a stock, there are almost always opportunities to buy during periods of much lower enthusiasm.
And how about the SharesPost 100 Fund (PRIVX)? That’s structured as a mutual fund, so it offers shares and redemptions (which are limited) only at the NAV, so you can’t ever buy in at a discount (or premium), and it’s far less liquid than GSVC. They do, however, have a big investment in Lyft, about 7.5% of the fund, and much smaller positions in Pinterest and Uber. Returns will not be as dramatic up or down as GSVC, most likely, but if Uber somehow goes from a $100 billion company at the IPO to a $200 billion one in the next few months (I certainly don’t expect that, but can’t predict the future very well), then that would have a small positive impact on the NAV for the PRIVX fund.
None of these investments is going to bring you a life-changing payday, and funds like these are expensive and high-friction investments in what is still a fairly opaque and illiquid market for mostly large and established private venture-funded companies. It’s an interesting asset class, but I wouldn’t look to these funds for IPO-based riches in any given stock or any given year.