Are Insider Sales a Big IPO Warning Sign?

When looking at Facebook’s IPO travails, one consolation was that at least they got the money. Unfortunately for the company’s ability to make acquisitions going forward, however, less than half of $16 billion raised in the IPO went to Facebook itself. The majority went to earlier investors.

So, I set up a data-crunching project. The parameters are as follows: Of the largest venture-backed IPOs of all time, what portion had insider sales? And, of those who did, what percentage of shares did they sell? Lastly, was there a correlation between the size of insider share sales and aftermarket performance?

The finding? Well, it seems large, venture-backed IPOs tend to do pretty badly, regardless of whether there are insider sales. The exception to this is Google, the second-largest VC-backed offering of all time, which had some insider sales and has subsequently, of course, done phenomenally well. Meanwhile, the two companies with the largest portion of insider sales – Facebook and Yandex –  are both down about 30% from their offer prices.

Following is a look at the largest offerings, insider sales, and how they’ve performed.

[slideshow]
[slide title=”Facebook”]
IPO size and date: Sold $16 billion worth of shares on May, 2012
Shares sold by insiders in IPO:  Of the 421 million shares sold in the IPO, 241 million, or about 57% were from selling stockholders.
Post-IPO performance:  Down about 30% from its offer price of $38 a share.

[slide title=”Google”]
IPO size and date: Sold $1.67 billion worth of shares in August, 2004
Shares sold by insiders in IPO:  Of the 19.6 million shares offered, 5.46 million, or about 28% were from selling stockholders.
Post-IPO performance: Suffice it to say you would have done very, very well buying at the IPO and holding.

[slide title=”Yandex”]
IPO size and date: Sold $1.3 billion in May 2011
Shares sold by insiders in IPO: Of the 52 million shares offered, 36.8 million, or about 70%, were from selling stockholders.
Post-IPO performance:  Shares are down about 25% from the IPO price, and well below the first-day close.

[slide title=”MetroPCS”]
IPO size and date: Sold $1.15 billion in April, 2007
Shares sold by insiders in IPO: Of the 50 million shares offered, 12.5 million, or 25%, were from selling stockholders.
Post-IPO performance:  Shares have lost nearly three-fourths their value since the offering.

[slide title=”Zynga”]
IPO size and date: Sold $1 billion in December, 2011
Shares sold by insiders in IPO: The company sold 100 million shares in the offering and selling stockholders granted underwriters the right to purchase up to an additional 15 million shares.
Post-IPO performance: Shares are down about 40% from the IPO price.

[slide title=”Semiconductor Manufacturing International Corporation”]
IPO size and date: Sold $992 million in March, 2004
Shares sold by insiders in IPO: Of the 98 million shares in the offering, 42 million, or 43%, were from selling stockholders
Post-IPO performance:  Shares have lost more than 80% of their value since the IPO.

[slide title=”Groupon”]
IPO size and date: Sold $700 million in November, 2011
Shares sold by insiders in IPO: Insiders did not sell.
Post-IPO performance:  Stock has lost nearly half its value.

[slide title=”Clearwire”]
IPO size and date: Sold $600 million in March, 2007
Shares sold by insiders in IPO:  The registration included share sales by lenders to Clearwire though not venture investors.
Post-IPO performance:  The company is valued at a fraction of its post-IPO worth.
[/slideshow]
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