Lnkd ipo

Memo to the heads of Facebook, Zynga, Twitter and other Bay Area hot social-media companies looking to go public sooner rather than later:

Watch out you don't get ripped off by your initial public offering underwriters like LinkedIn did, say a number of observers.

Ripped off how? Hundreds of millions of dollars that should have gone into the Mountain View company's bank account on IPO day wound up instead in the pockets of the underwriters and their favored clients, a growing number of industry watchers say.

The latest is Peter Thiel, a Facebook investor and co-founder of PayPal. Given the way LinkedIn's offering played out, Thiel said in a front page story in Tuesday's Financial Times, "you assume the IPO was mispriced and the bankers screwed up" (sfg.ly/knvlqn).

Thiel and others point to the difference between LinkedIn's offering price of $45, as set by the underwriters, its opening price of $85, and an overall first day "pop" of 110 percent. To them, the gap suggests the IPO was way underpriced, either deliberately or through sheer incompetence.

Not that LinkedIn executives are complaining, at least not publicly.

The company took in $352 million from the shares the underwriters sold on its behalf. It would have made much more had the offering price been set closer to the opening price - $200 million more, if it had been set at, say, $60.

Feasting on the gap surplus were the underwriters - JPMorgan Chase, Bank of America, Merrill Lynch and Morgan Stanley (which already earned $25 million in fees) - and their elite clients who got shares at the $45 offering price.

"Bankers are rewarding their friends and themselves instead of doing their fiduciary duty to their clients," Zynga General Manager Eric Tilenius wrote, blasting the LinkedIn IPO in a Facebook post.

Scam, or more complicated? Joe Nocera, co-author of "All the Devils Are Here: The Hidden History of the Financial Crisis," went further in his New York Times column, saying, "LinkedIn was scammed by its bankers. LinkedIn is supposed to be the client, but it was treated like the mark."

Not everyone agrees. After all, LinkedIn sold only 5 percent of company stock in the initial offering; there'll be plenty more where that came from. It could also be argued that the $45 offering price was justifiably conservative, if not overpriced, given fears of a new Silicon Valley bubble mania.

"We often get it wrong, but, on average, IPO pricing is normally pretty accurate. After all, it's our job, and we do it well," says the "pseudonymous investment banker" who writes the respected and oft-quoted Epicurean Dealmaker blog.

"The picture gets complicated, however, when the company in question, like LinkedIn, does not have any comparable peers among listed public companies. Our guesses become much less educated and much more finger-in-the-air type things. There is no cure for this but to go to market and see what investors themselves tell you they are willing to pay"