No One’s Going To Get Rich From The Lyft IPO – They Already Own It

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As we’ve pointed out before people have a very strange series of beliefs about initial public offerings, this idea that the Lyft IPO is going to make some set of people rich. This simply isn’t so, they’re already rich, that’s why they’re having the IPO. They yesterday owned something that was of value, they today still own something which is of value. That’s how this capitalism and markets thing works.

Thus this is just silly as the basis of an article:

Here’s who will get rich from the Lyft IPO

Well, no one, actually.

As Lyft makes its debut as a publicly traded company, co-founders Logan Green and John Zimmer will be rich. But they won’t be billionaires just yet. At an opening price of $87.24 a share, Green’s stake in Lyft (LYFT) is valued at about $730.5 million while Zimmer’s shares are worth about $504 million.

And yesterday they owned significant chunks of the very same company, those chunks also meaning they were rich yesterday.

Sure, the value of that stake may have changed a bit today. They may have cashed some in, maybe not. But if they’d offered the whole of Lyft for sale yesterday they’d have found a buyer at some amount that would have made them about as rich as they are today.

That is, the thing that made them rich was starting and building Lyft, not the process of the IPO. Which is, after all, simply widening the circle of shareholders.

We have said this before of course:

Just a little note here concerning the upcoming IPO of Lyft, the ride sharing company. CNBC is trying to tell us that certain people are going to get rich as a result of this IPO. This is not so – the people they’re talking about are already rich. They must be, otherwise how would an IPO gain them value? Quite, they’e in the process of selling some part of something that’s valuable, that’s what an IPO is. Great, good luck to them. But to be able to sell it then they must own it now. And further, to be able to sell it for some nice large amount then it must already be valuable. Thus, they already own some decent piece of something that is already valuable – they’re already rich.  

But no one ever listens, do they?

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TD
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TD

The Lyft shares, of course, are now more liquid which generally adds value. Business appraisers often deduct value for illiquid investments when using listed company comps. So it is fair to say that a public offering often has the effect of making the rich shareholders of a private corporation somewhat richer shareholders of a listed corporation.

timworstall
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timworstall

Indeed, and there’s a difference between “make rich” and “make richer”