IPO Rant - Everybody Lies. - Damped Spring 101

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IPO Rant - Everybody Lies.<br>The IPO Game.

Damped Spring<br>Jun 09, 2026

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This is going to be a rant. I am going to rant, not because of any particular market view I may have, but, because you all may not really understand what the IPO Game is about and how it works. You may find it informative or entertaining or hopefully both. Its definitely suitable for criticism like this meme.

I am old and have seen some things and my brain has shrunk in my dotage. “Back in the day” is how these always start. Back in the day I was the global head of equity derivatives and member of the the seven person equity management committee at Salomon Smith Barney/Citigroup during the tech bubble. I was right in the middle of everything at an extremely senior level. Perhaps 1 of less than 100 people on earth with as clear and detailed picture of that time frame. This rant is about IPO’s and specifically the various incentives of the participants. While certain rules were written to curb some abuses since then the incentives have not changed and what has changed is mostly to not write stuff down that can be subpoenaed in the future. During that time there were thousands of IPO’s.

We were not the best IPO firm. Many firms that did a lot of business have been absorbed or gone out of business. BUT we were the favorite co-lead manager on the planet. So we were busy. Let’s break down the various participants in an IPO.<br>The Issuer

The Outside Selling Shareholders (whether in the deal or locked up)

The Founders

The Investment Banker

The Commercial Banker

The Private Banker/High Net Worth Retail Broker

The Sell Side Research Analyst

The Biggest Institutional Investors

The Middle sized Institutional Investors

The “friends of the firm” Institutional investors

High Net Worth and Private banking investors

Pure retail

The Regulators/Government

The Media

When you look at this list you might think that these participants have incentives that are by definition in conflict. The seller and buyer “must” have different interests. This would be a mistake at not only the macro level of the whole IPO environment but at the micro level of a particular deal. By and large every single participant wants an IPO to raise the money AND rally in the after market.<br>The cohort selling is selling a small portion of what they own. They are happy to leave a ton on the table. Any cohort getting an allocation wants the shares to rip. The entire sell side is dedicated to making that happen and just wants to collect the rent from being in the middle for as long and as much as they can. The entire regulatory and policymaker construct wants this to go well and have the money raised, investors happy, and the economy stimulated while they are in office. The media absolutely thrives on all the stories plus they know that while post IPO boom stories can be snarky and I told you so in nature no one likes those stories as much as get rich quick.<br>Of course a specific deal has conflicting incentives between the seller and buyer and the lead manager needs to manage a deal well such that they capture repeat business from the seller while not pissing off the buyers so the bank can win the next IPO mandate but these conflicts are tiny in comparison primarily because the issuer is selling so small amounts of shares and what they want long term is a successful IPO which encourages after market buying.<br>When incentives are powerful “Everyone Lies”<br>The Issuer lies<br>It stretches every possible limit in its roadshow. It “negotiates” with the banks by winking about future business which is a lie. It negotiates with the underwriters and potential buyers to make the deal “special” in some way. It demands after market support both in market making and research coverage from the Sell Side. It engages in allocation decisions to favor its key buyside investors who “promise” to buy more in the secondary market. It encourages giving retail, hnw, and private banking clients just a taste causing them to “want more”. I have even seen IPO issuers requiring their underwriter to allocate over the shoe and essentially go short deals forcing the underwriter to actually take losses on hot deals. BUT all that said they absolutely want the deal to trade up and stay above the issue price post IPO. A hot deal has no stigma a deal that trades down in the aftermarket is a momentum killer. Look at Figma for example.<br>The Outside selling shareholder lies<br>They claim they will buy 1BN on the IPO despite owning 15BN at a much lower cost. They are both pumping the deal for obvious reasons as they own the company AND simultaneously negotiationg the minimum lock ups possible to allow themselves liqudity in the future. As long as they are NOT sellers on the IPO’s they are entirely aligned with the world to have the deal go well. In rare cases like the FB IPO the selling shareholders are a large portion of the...