Judging by the LinkedIn IPO, “going public” may be fashionable again.
Investors lucky enough to own LinkedIn shares (i.e., employees and a small number of wealthy, well-connected investors) saw their shares more than double in price in a single day, jumping from the initial offering price of $45 to $94.25 by the end of the day. Investors who owned private shares, which were being traded on secondary markets, enjoyed even larger gains.
Prices dropped the next day, as some investors cashed in on their profits, but few who own shares are complaining, given that LinkedIn’s debut was the biggest since 2006.
Unfortunately, though, most companies are not LinkedIn. Companies like LinkedIn, Groupon and Facebook are atypical.
The purpose of an IPO is supposed to be to provide the capital needed for relatively small companies to grow, and the number of small, innovative companies registering for IPOs is still down significantly from past years.
To date, 61 companies have completed IPOs this year, up from 51 at this time last year and only seven in 2009. In contrast, 83 IPOs took place in the first five months of 2007, which is still far short of the 185 deals that took place through May in 2000.
The number of IPOs has fallen for many reasons, including the cost of compliance with the Sarbanes-Oxley Act; Eliot Spitzer’s global research settlement, which resulted in a lack of research for small company stocks; the dot-com bubble, and the financial crisis.
While the average investor has little chance of obtaining stock in a hot IPO, a resurgence of IPOs would be good news, as it would fuel the growth of the next generation of companies that will create jobs, spur economic growth and give the stock market a much-needed boost.