Tomio Geron | May 18, 2011
LinkedIn is preparing to price its IPO Wednesday and begin trading on the NYSE Thursday, in what could be a very big day for the company as well as investors and other shareholders.
Will the offering also open up a flood of new IPOs from Internet and social web companies that have been waiting for a “Netscape moment?”
LinkedIn upped its price range Tuesday to $42 – $45 from $32 – $35, a sign of what appears to be very strong demand for the IPO. At the top of the new range, LinkedIn would have a market cap of $4.25 billion.
LinkedIn will be the first social networking company to go public except for China-based Renren, which went out earlier this month, so it will set a public benchmark for the entire category. SecondMarket and Sharespost enable people to grab shares of companies like LinkedIn but up until now no company has gone public to prove that the prices trading on those platforms would stand up in public markets.
For Facebook, Zynga, Groupon, Pandora and others that are poised to test the public markets, a strong LinkedIn IPO will provide more confidence that they can move forward with their own offerings.
“I think it provides a lot of optimism, not just a little,” says Kevin Covert, founder of tech investment bank Covert & Co. “It really opens up the IPO market. When you look at all the IPOs lined up. Just that optimism hasn’t been around for a really long time–since the last tech bubble.”
The LinkedIn IPO will also be a boost for smaller start-ups with a social bent–which is virtually anything in Internet or mobile these days-whether they are seeking a venture round, an acquisition or just hope for the future, says Covert. From what I’ve been hearing about early stage financing, the deals will only get crazier from here.
“This will set a good benchmark for those other companies,” Covert said.
Bankers will be firing up their spreadsheets once LinkedIn officially prices, because they’ll have something to really compare to in the public markets, rather than unofficial secondary market valuations.
“That’s what every other IPO banker is going to point to when they file their IPOs,” Covert said. “They’ll use that for pricing and the performance afterwards.”
For start-ups, LinkedIn not only provides a high valuation benchmark, it also now will be flush with cash and a new major acquirer, Covert said.
In the past many had talked about Facebook being the first to go public and usher in a new wave of IPOs the way Google or Netscape once did. But LinkedIn could end up being that company.
The ironic thing is that LinkedIn makes money in a variety of different ways, whereas many social web companies rely purely on advertising. And with its business focus, LinkedIn is different in many ways from most of the consumer-oriented social web start-ups today.