Here in Boston we are proud of being innovators. And we have also gotten very green in a hurry. One of the biggest success stories in recent years has been the car-sharing company Zipcar. Rather than buying a car and wasting fuel and expense, just borrow one by the hour, as part of a green club that is expanding across the country and the world. Zipcar doesn’t just have plans to take out the rental market, they believe they will fundamentally change the way we own and use cars, thereby reducing our carbon footprint.
Great idea. Very profitable. Enter Goldman Sachs & Co. Yesterday they took the company public. The company sold $180 million dollars of stock to the public at $18 per share. By the end of the first day of trading the stock was at $27.
Let me explain the math. Goldman takes 7 percent off the top as a fee ($13 million). Then they give shares to their best institutional buyers as goodies. Those buyers make a 50 percent one-day return and most likely flip the shares. The shareholders of our proud green company get screwed. Some even sold into the offering, meaning they sold their shares at a 50 percent discount to the real market price.
Henry Blodget, the noted research analyst who was booted out of the industry by Elliott Spitzer (two bad guys makes one good one?) before coming storming back to start Business Insider, wrote a great piece this morning calculating the Goldman take at $50 million on top of the $13 million fee.
He puts it this way:
Here’s a simple analogy:
This is as if the trusted real-estate agent you hired to sell your house persuaded you to sell it to her best client for $1,000,000 by telling you this was the best price she could get. And then, the next morning, the person who bought your house immediately turned around and sold it for $1,500,000 (using the agent to sell it, naturally).
How would you feel if your agent did that?
According to one source Zipcar had actually sold shares to private investors last year at a higher value than Goldman marketed the shares in the IPO. Despite massive progress at the company they decided to try to sell shares in a down round. $180 million worth. To their friends.
Blodget, the former crook, is right. He knows a skunk when he sees one.