IPO Conspiracy Revealed...

By Matthew Milner, on Wednesday, February 8, 2017

Fortune just dropped a bombshell:

The pending IPO of SnapChat—one of the most anticipated tech IPOs since Facebook—might be a hoax.

You can’t make this stuff up.

As Fortune reported on Monday, it’s become aware of a “conspiracy theory” that Snap’s massive IPO is just a ploy.

But a ploy to what end?

Today I’ll explain everything….

And more importantly, I’ll explain how you can profit from ploys like this.

End of the Stock Market

In order to understand the SnapChat conspiracy, first you need to be aware of a much larger trend we’ve been tracking.

You see, nearly three years ago, I wrote an essay called “The End of the Stock Market.”

The essay explains the key reasons I believe the public stock market is no longer the place to earn outsized returns.

I’ll link to the article later (it’s a quick read, and it lays out the foundation for many of our beliefs at Crowdability), but for now, let me paraphrase its conclusion:

Windfall profits for stock market investors have disappeared.

Today, those profits are reserved for private market investors.

Birth of a New Market

To prove what I’m telling you, let me show you a chart.

As you can see below (compliments of venture capital firm Andreessen Horowitz), over the last ten years or so, there’s been a shift in the type of investor that captures the largest returns.

The grey portion of each bar chart reflects the profits captured by public stock market investors…

And the orange portion shows the profits captured by private investors.

public private

As you can see with even a quick glance, for many years, public investors reaped the lion’s share of a company’s returns…

But starting around 2004, that started to change.

Shifting Profits 

To see what I mean, look at Microsoft (NASDAQ: MSFT).

When it went public in 1986, Microsoft’s earliest private investors made about 200 times their money. Not bad.

But after it went public, stock market investors made even more than that. They made about 600 times their money.

As the chart reflects, prior to 2004, public investors also did well in other fast-growth tech companies like Apple, Oracle and Amazon.

But look what’s been happening since 2004:

Time and again, from Google to LinkedIn to Twitter, early private investors made hundreds of times their money—and meanwhile, public market investors made just a tiny fraction of that.

What’s going on here?


The stock market lost its ability to provide investors with windfall profits. Today, as companies stay private longer, those profits are reserved for private market investors.

And it’s likely to be the same story with SnapChat—

Which brings us back to Fortune’s conspiracy theory…

SnapChat’s Conspiracy

The conspiracy theory about SnapChat isn’t so crazy.

You see, Fortune makes the case (and I agree) that SnapChat‘s upcoming IPO might just be a huge smoke screen:

It’s a ploy to attract a big buyout offer!

Let me explain:

A few years ago, Facebook offered to buy SnapChat for $3 billion. SnapChat turned it down, saying the company was worth far more. But Facebook didn’t raise its bid. Essentially, it told SnapChat there was no way it was worth more.

But now Snapchat has proven its value. By signing up Goldman Sachs to lead its IPO—and by lining up investors willing to pay a $25 billion valuation for the company’s public shares—it’s proven that it’s worth at least $25 billion.

So for any company drooling over the possibility of owning SnapChat right now, the bidding will start at $25 billion.

It’s not that it wouldn’t go public if it had to—it would. But running a public company is an expensive headache. And besides, its value as a public company might be lower than its value as an acquisition.

At first blush, this theory might seem far-fetched. But just two weeks ago, we saw a different pre-IPO company successfully use the exact same strategy:

Just when high-flying start-up AppDynamics should have been putting the finishing touches on its white-hot IPO, out came an announcement:

Rather than going public, AppDynamics was being acquired by Cisco for $3.7 billion.

And as Forbes reported, the acquisition price equaled “a price tag more than twice of the one at which the company was set to debut as a public company.”

And this affects you:

You see, instead of public market investors capturing all the gains from AppDynamics, the company’s private investors kept all those gains for themselves.

And these examples aren’t outliers. Not by a long shot:

As venture capitalist Neeraj Agrawal reported last week, in 2016, more than $63 billion of such transactions occurred—transactions where the fastest-growing companies on earth were acquired, rather than going public.

And to put that $63 billion figure in perspective, that’s up from just $5 billion of such transactions five years earlier.

What This Means for You

Sure, the conspiracy theory about SnapChat might just be a rumor.

But that’s almost beside the point:

Like you saw in the chart from Andreessen Horowitz, the stock market can no longer provide you with the type of financial growth you’ve become accustomed to.

Even if SnapChat does go public, there’ll be little room for major price appreciation. Private investors will have already sucked out the biggest gains.

Historically, this state of affairs would have spelled disaster for individual investors like you. That’s because, for the past 83 years, only wealthy individuals and institutions were granted access to the private markets.

But because of a new set of laws known as The JOBS Act, now you can invest in companies while they’re still private—and now you can capture the big gains.

So remember:

If you’re looking for big gains, go private.

And here’s the article I promised to link to, "The End of the Stock Market." »

Happy Investing.

Best Regards,
Matthew Milner
Matthew Milner


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