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Secrets of the IPO game exposed , as Zynga heads for the market


By Noel Young, Correspondent

December 1, 2011 | 3 min read

Despite the disappointment of daily deal firm Groupon falling below its IPO price just a month ago of $20, games giant Zynga is confident it will do well in its IPO this month.

Mark Pincus

Reason: the FarmVille creator is bringing few shares to market, as did LinkedIn, Groupon and Pandora Media, all of whom offered less than 10 percent of their shares for sale - thus keeping early demand high. It's called a "thin float" .

Marty Pichinson, co-founder of Sherwood Partners, says it is a "reasonable, if risky, tactic" given the volatility of the stock markets.

He tells the Mercury News today, ""If you and I owned an ice cream shop in the middle of winter, would we put out a lot of ice cream?"

Duke University professor Vivek Wadhwa takes a different view. He says the investment bankers behind Groupon's IPO "had the system rigged," with the thin float ensuring a big first-day price leap up to $26 at one point. It's now at $17.50.

He still expects high investor demand once Zynga, most visible on Facebook, goes public.

Wadhwa is however concerned that LinkedIn, Groupon and Zynga all structured their offerings to give founders 10 times or more voting power than ordinary joes. .

At Zynga CEO Mark Pincus, will be the only person with access to the company's "Class C" stock, carrying 70 votes per share. The stock in this month's IPO carries ONE vote per share, he tells the Mercury News. Well, would you want all these guys getting their hands on the levers of power at the company you called your own?

Analyst Joe Spiegel, of New York's Dalek Capital Management , says that by creating a special class of stock reserved for insiders, "a company is able to get around giving those pesky shareholders a vote."


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