The Survival Podcast Forum

Finance and Economics => The Money Board => Investing and Saving => Topic started by: Smurf Hunter on August 29, 2016, 11:39:28 AM

Title: Former company announced IPO - seeking an exit strategy
Post by: Smurf Hunter on August 29, 2016, 11:39:28 AM
Over the weekend I learned that my former employer (a tech startup I left 5 years prior) has filed their initial public offering (IPO) to sell shares of company stock.  At the time I terminated my employment, I exercised all the stock options I was vested in.  I had a low strike price of $0.80/share, and figured it was a small risk to buy the 4000 shares I was vested in at the time I left.

This is not an investment advice thread (yet), but I do have some logistical/administrative questions about the process.

So in my safe at home, I have the paper stock certificate.  At this point that certificate is not worth more than toilet paper with some big hopes and dreams.  The value of private companies are not publicly known, so it's almost impossible to estimate a fair price.

That all said, in reality technology companies don't file for IPO unless they anticipate some ROI for their investors.  I know what the various rounds of venture capital have raised, and can do some napkin math.

The good news:
I've held this stock for nearly 5 years, and thus have reduced my tax exposure as it's a long term gain.  I believe that's 15% in federal taxes.
So even if it only reached $1.00 on opening day, I'd still make a tiny profit after taxes.  I sure they wouldn't plan an IPO to only trade at single digit prices.

The uncertain news:
I want liquidate this so I can have the money, and transition into a "how do I invest this" thread.
In order to do that, I of course must sell the stock.
Do I sell at the opening bell, end of day closing price or something else?
I worry if I hold too long, the market will sober up and the price will correct.

I apologize if any of this sounds boastful.  I don't really feel like this was luck - I worked hellacious hours for a few years of my life, and have waited for half a decade for this payout.  Maybe this is a weird blessing, as I'm older and wiser today and thus am less likely to do stupid crap with the money.  :-\
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: fritz_monroe on August 29, 2016, 12:12:20 PM
First I hope it works out great for you.  Who knows, it could be big mover.

I can't offer any help except to tell you to understand that any stock ticker value is NOT a profit until you sell.  So if it goes up to $10 a share then drops back down to the $.80 you paid for it, you did not lose any money.  You didn't realize potential profits, but you didn't lose.  I've known a lot of people that have really fretted over potential profits that they were not able to realize.
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: David in MN on August 29, 2016, 12:24:00 PM
I've had some friends go through this as well. You probably want to get in touch with the company so they  can arrange to give you electronic shares for your paper shares or connect you to the correct broker in order to liquefy your paper shares. Paper can be goofy. What I'm getting at is that you need the ability to claim and sell your shares.

As far as when to sell, that's crystal ball stuff. Unless you can come up with your own valuation to best guess if the price is correct it's a crapshoot. And even if you get the math right Wall Street might not.
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: Smurf Hunter on August 29, 2016, 12:36:24 PM
I've had some friends go through this as well. You probably want to get in touch with the company so they  can arrange to give you electronic shares for your paper shares or connect you to the correct broker in order to liquefy your paper shares. Paper can be goofy. What I'm getting at is that you need the ability to claim and sell your shares.

As far as when to sell, that's crystal ball stuff. Unless you can come up with your own valuation to best guess if the price is correct it's a crapshoot. And even if you get the math right Wall Street might not.

I absolutely will create an online brokerage account in some form.  From a recent press release (found today after posting):

Quote
Goldman, Sachs & Co., J.P. Morgan Securities LLC and BofA Merrill Lynch will act as joint lead bookrunners for the offering, while Barclays Capital Inc., Jefferies LLC, RBC Capital Markets, LLC and Pacific Crest Securities, a division of KeyBanc Capital Markets Inc., will act as bookrunners.

So I presume any of those institutions would be able to convert my paper to an electronic online account.

Other info:

Quote
The number of shares to be offered and the price range for the proposed offering have not yet been determined.

Quote
A registration statement relating to these securities has been filed with the SEC but has not yet become effective.

Time-wise it would seem I need to know when this becomes "effective" and get an electronic account created ASAP after that.
At that point I'll have the prospectus and can at least pretend to be working from real data :)
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: Black November on August 30, 2016, 12:56:11 PM
I like Tradeking and have used them for years.

You may want to use a "trailing stop (http://content.tradeking.com/wiki/display/tkservice/Trailing+Stops)."

A trailing stop allows you to hold the stock as long as it is going up. You set a drop percentage like 2%, and as soon as the stock drops 2% from the highest price is automatically sells.

It's like jacking up a car and putting safety shims/blocks under it in case it falls.
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: David in MN on August 30, 2016, 01:57:17 PM
I like Tradeking and have used them for years.

You may want to use a "trailing stop (http://content.tradeking.com/wiki/display/tkservice/Trailing+Stops)."

A trailing stop allows you to hold the stock as long as it is going up. You set a drop percentage like 2%, and as soon as the stock drops 2% from the highest price is automatically sells.

It's like jacking up a car and putting safety shims/blocks under it in case it falls.

I've never used Tradeking. I have accounts with Scottrade, E*Trade, and Schwab at the present. Of them all E*Trade gets my vote. $3 more per trade than Scottrade but the layout is better and the site provides better management metrics. IMHO.
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: FrugalFannie on August 30, 2016, 04:14:13 PM
There is usually great amounts of speculation ahead of time as to what price the stock will be offered out at initially. And it is usually fairly close. So if all the talking heads are stating they expect the price to be $30/share at IPO, it will "likely" come in near that. Now what it does from there is variable. But again, depending on how much coverage and the nature of that coverage you will likely have a pretty good feel ahead of time if it will likely hold that value on opening day or go wildly one way or another. IIRC there are not a lot of IPOs recently, which makes IPOs a "desired investment" for large funds in many ways. So if the IPO price is speculated to be $30/share you could contact a broker ahead of time, let them know that you want to sell if it drops to $27 or if it hits $35. You cover your down side and your upside. You can also give them instructions to sell 30 minutes before close of business that day even if neither of the other criteria have been met. At $27/share you would gross $108K. At $35/share you gross $140K. You can also issue partial sell orders. We did that with a small investment that "spiked." We had a very low buy in price and when we sold at it's peak we sold half. We made an incredible return, many times over the TOTAL investment and were left with half of our initial purchase. The price has since dropped by half, which is still an incredible return and many times over our total initial investment. So we won. If it spikes again, even higher than it was before, we may sell the rest of it. We locked in our win and still have the possibility to win more.
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: Smurf Hunter on August 30, 2016, 04:31:02 PM
Thanks for the ideas.  I currently have a TDAmeritrade account for my traditional IRA.  I'll probably go into whatever firm has a local branch office so I can physically walk in and convert my paper certificate into digital.

I don't often use trading instruments, aside from limit orders, but am familiar with the general usage.

I'll update when/if the SEC approves the filing and a prospectus is made public.  At least then I'll have some facts to work with, and a timeline.
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: bigbear on August 31, 2016, 11:03:53 AM
Any brokerage should be able to walk it through with you.  Once the ticker is known, I would imagine they can convert it ahead of time so you can trade the day of.  Tell them what's going on, ask about that process, and maybe ask to speak with a manager just to make sure you're on the right path.  If the goal is to sell day 1, then the ducks need to be lined up beforehand.

I was going to suggest Scottrade because they may have a local branch near you (no clue what's in your area).  That's one of the reasons I went with Scottrade at least.  I've only heard good things about E*Trades site though. 

Do your napkin math.  Continue following the news.  Consider the projects and direction the company was on when you left and see if things match up (and at least an explanation if not).  It could just be a way for the current owners to cash out as much as for the company to take the next step in growth.

It seems like a 'no lose' situation for you though.  So I wouldn't stress too much about timing within the day.  It's a crap shoot from what I understand.  Maybe take the day of the IPO off of work though, so you can watch the tea leaves the opening day.
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: Smurf Hunter on August 31, 2016, 11:23:21 AM
Any brokerage should be able to walk it through with you.  Once the ticker is known, I would imagine they can convert it ahead of time so you can trade the day of.  Tell them what's going on, ask about that process, and maybe ask to speak with a manager just to make sure you're on the right path.  If the goal is to sell day 1, then the ducks need to be lined up beforehand.

I was going to suggest Scottrade because they may have a local branch near you (no clue what's in your area).  That's one of the reasons I went with Scottrade at least.  I've only heard good things about E*Trades site though. 

Do your napkin math.  Continue following the news.  Consider the projects and direction the company was on when you left and see if things match up (and at least an explanation if not).  It could just be a way for the current owners to cash out as much as for the company to take the next step in growth.

It seems like a 'no lose' situation for you though.  So I wouldn't stress too much about timing within the day.  It's a crap shoot from what I understand.  Maybe take the day of the IPO off of work though, so you can watch the tea leaves the opening day.

Good info.  There's actually a Scottrade office across the street from my work.

Regarding the company's operations, I still keep in touch with some employees.  I'm a software engineer, and most of my contacts are other technical folks. 
While their revenue and customer list is impressive, they aren't scaling costs well at all.

It's the classic spend $100 to win $90 of business.  Sure, they have a new Fortune 500 client, but they lost a bit of cash to make it happen.  So while the customer list, and annual revenue are growing, so are operational costs.  You'd think a tech company would be the inverse, but this place is really a professional services shop, despite what they may claim.

So I plan to exit day 1, or at least not long after.  If they happen to go public during some broader financial calamity that's affecting all indexes, I may hold off selling until things level off.
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: Smurf Hunter on September 20, 2016, 02:06:13 PM
UPDATE:

so today at lunch I walk down to the Scottrade office with my paper stock certificate in hand.
Broker tells me their policy prevents the transfer of stock before the company is publicly traded.
Further, since I have a 180 day restriction before I can sell, that is another restriction that prevents them from transferring.

I feel like I'm walking around with a $75K gift card that I can't use...  :pissed:
Title: Re: Former company announced IPO - seeking an exit strategy
Post by: David in MN on September 20, 2016, 03:09:06 PM
Let that be a lesson, pleb. If you wanted to have access to the stock market you'd do the right thing and work at Goldman Sachs.

On the bright side at least there is some light at the end of the tunnel. Overtaxed, over-regulated light. But light.