#+title: Section 11 | Lesson 64 - how an IPO works
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* Links
- [[./../mba-main.org][TOC | Business]]
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4315046#overview][S12:L64 course video]]

* notes
** Mary Meeker – Internet Trends Report

Mary Meeker, formerly a partner at Kleiner Perkins, is known for publishing the Internet Trends Report, one of the most influential annual reports on internet usage, the digital economy, and technology adoption.

*** Key Facts
- Report Name: Internet Trends Report (also known as Meeker Report)
- Published: Annually, starting in the mid-1990s
- Content includes:
  - Global internet usage
  - Mobile trends
  - Digital advertising
  - E-commerce
  - Social media growth
  - Emerging technologies such as AI, cloud computing, and voice interfaces
- Originally released by: Kleiner Perkins
- Later reports released by: Bond Capital (Meeker's own VC firm, after leaving Kleiner Perkins in 2018)

** how to value companies without revenue

- valuation for high tech companies without revenue is based on subscribers

*** facebook vs instagram

**** facebooks value for subscribers

\begin{equation}
\text{value per Subscriber} = \frac{\text{Facebook Market Cap}}{\text{Facebook Users (Subscribers)}}
\end{equation}

\begin{equation}
\text{value per Subscriber} = \frac{\text{\$231,000,000,000}}{\text{1.4 billion subs}}
\end{equation}

\begin{equation}
\text{value per Subscriber} = \text{\$165 per subscriber}
\end{equation}

**** instagram value for subscribers

\begin{equation}
\text{value per subscriber} = \frac{\text{instagram acquisition price}}{\text{instagram subs}}
\end{equation}

\begin{equation}
\text{value per Subscriber} = \frac{\text{\$1,000,000,000}}{\text{100,000,000 subs}}
\end{equation}

\begin{equation}
\text{value per Subscriber} = \text{\$10 per subscriber}
\end{equation}

*** whatsapp
- facebook is mostly first world companies
- whatsapp has penetration in third world
- facebook messenger sucks ass

**** change in growth rates
- facebook was losing subscribers
- whatsapp was growing

**** subscriber value
- number of subscribers :: 700,000,000
- price bought :: 20bn
- price / subscriber :: 28$

** valuation methods depend on the industry
*** short term drivers based on company
| industry           | driver            |
|--------------------+-------------------|
| consumer tech      | subscribers       |
| enterprise tech    | revenue           |
| semiconducter tech | earnings          |
| hotels             | revpar            |
| industrials        | earnings & volume |
| telecommnications  | arpu              |
| retail             | earnings & SSS    |
| biotech            | FDA approval      |

**** definitions
- revpar :: revenue per available room
- arpu :: average revenue per users
- sss :: same store sales
**** notes
- same store sales
  - investors want to see that the individual stores grow organically
  - e.g. mcdonalods started staying open all day, and profits skyrocketed

- fda approval is necessary for biotech
  - no approval no profit
  - once you get it, it's printing money
  - stocks go up or down a ton depending on approval

*** long term drivers
earnings and cash flow

*** additional valuation methods

** example of IPO
1. microsoft offers to buy company for 1bn
   - reject it bc too low
   - want to go big
2. talk to our VC Sequoia for advice
   - they recommend we talk to Goldman sacks
3. Goldman Sacks recommends we bring in other banks
   - reasons
     - this going to be a large IPO
     - Sequoia wants to spread it out
     - we will have a better job negotiating a good deal if we have more banks

   - banks
     - Morgan Stanly
     - UBS

*** Goldman Sacks Divisions
**** Investment Bankers
- underwrite the IPO
  - legal documents
  - excel valuation
    - what valuation you should use
  - list all the risks "IPO Perspectous"
    - all risks have to be disclosed
    - also called an S-1

**** Equity Capital Markets (ECM)
1. write 20 page sales memo for the GS sales team
   - condense information in the S-1 Perspectous

2. train sales team how to market the deal
   - pros & cons
     - always bring up the risks
   - integrity is key

3. call clients
   - mutual funds
     - Fidelity
     - Citadel
   - hedge funds

4. after orders are submitted ECM decides how many share each client gets
   - Goldman and the company doing the IPO negotiate on this
     - Goldman will fight for their own clients
     - companies typically want long term shareholders
       - the clients who understand them
       - companies can always track investors who sell shares
         - SEC law that mutual funds have to disclose every three months what their long positions are

         - companies that don't flip tend to get more shares

5. Traders then distribute shares to the clients

6. Goldman wires the IPO proceeeds to the company minus the fees.