The Reality of IPO Pops

Congrats to the folks at OneStream on a successful IPO. They gifted SaaS fans with a rare sighting - a day one IPO pop!

On a day the larger tech market was red, their stock painted a lot of green. As points out, the company traded up 34% in day one from it’s issue price of $20 to ~$27.

But this pop doesn’t change the $490 million in proceeds the company raised to bolster their balance sheet and fund future growth. Contrary to popular belief, IPO pops do not make the company itself any richer. Their upside is capped at the issue price.

Yes, employees benefit in a big way. But it’s a form of delayed, and non guaranteed, gratification - most IPOs come with 180 day lockup periods. So for the moment they are sitting pretty on paper, and will have to wait a minimum of six months to turn any upswing in stock price into real cash gains.

The ultimate winners are the institutional investors who received pre IPO allocations. They get a super quick return on their cash, buying in at issue price (and sometimes even a little bit less) and can flip it immediately for a profit (even if they say they won’t, lol). The original VCs on the cap table (in OneStream’s case, KKR) also make out like bandits, marking up their valuations.

The investment banks underwriting the IPO also do great. Pops are viewed as a big win, and enhance their reputation, attracting future IPO business. And the not so widely known benefit is that banks on the cover usually get an allocation for their private wealth management clients, as the rich get richer from access to an oversubscribed IPO that immediately pops.