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A lot of people got rich on Twitter (NYSE: TWTR) stock following the Twitter IPO this week.
Especially after it opened 73% above its IPO price at $45.10.
The company announced Wednesday that it priced the 70 million shares at $26, which will raise about $1.8 billion dollars for the social media and messaging darling. Although the company tried to keep expectations low following Facebook‘s (Nasdaq: FB) ill-starred debut last year, the road show seems to have generated enough demand to warrant a higher offering price.
According to the prospectus, the underwriters have an overallotment that would enable them to sell an additional 10.5 million shares at the underwriting discount, if all 70 million are sold. If that option is exercised, Twitter will raise a total of $2.1 billion.
So who, exactly, is going to get rich from the Twitter IPO?
Here’s Who Makes Out in the Twitter Deal
First in line are the existing stockholders.
These include founder Ev Williams, whose 59 million shares will make him the only billionaire straight out of the IPO. His co-founder, Jack Dorsey, will find himself $586 million richer, and Richard Costolo, the chief executive officer who has overseen Twitter’s growth to public listing, will make about $192 million.
Then, there are the institutional investors, the venture capital funds that participated in Twitter’s six rounds of funding.
Startups like Twitter typically go through several rounds of lettered capital raises (e.g., Series A, Series B, Series C, and so on) to fund operations and growth. In these rounds, the company sells convertible preferred shares of its stock to accredited investors and institutions like venture capital funds and angel investment funds. If the company makes it to an IPO, those shares of preferred stock convert to common stock.
According to the S-1 filing that precedes the IPO, five firms – Rizvi Traverse, Benchmark Capital Partners, Union Square Ventures, Spark Capital, and DST Capital – hold 5% stakes in the company. That gives each of them roughly 24 million shares apiece, which will be worth about $570 million.
Here’s an example, to give you a sense of the return…
Benchmark Capital Partners paid $7.63 per share for 1.1 million shares during the Series F convertible round between December 2010 and January 2011. In July 2011, during the Series G convertible round, DST Capital paid about $16 per share for 12 million shares.
The actual process of selling the 70 million shares is handled by the underwriter’s syndicate, headed by Goldman Sachs. According to a Wall Street Journal report, the underwriters will receive 3.25% of the total proceeds of the sale, around $52 million, with Goldman Sachs getting the lion’s share of 38.5%. Other underwriters include Morgan Stanley (18%), JP Morgan Chase (15%), Bank of America Merrill Lynch (8%) and Deutsche Bank AG (8%), boutique advisor Allen & Co. (7%), and Silicon Valley advisor Code Advisors (0.5%).
Goldman et al have taken the risk of selling shares to the investing public, and this they will do with alacrity. Their top institutional clients – hedge funds, mutual funds, asset managers – will all get apportionments of stock at the IPO price. These clients, in turn, will hope that the price goes up quickly so that they can sell for a profit. The company’s insiders are not allowed to sell for 180 days.
No deal of this magnitude gets done without lawyers. Wilson Sonsini Goodrich & Rosati, P.C., which is handling the legal side of things for Twitter, owns about 8,000 shares. Of course, they also get the nigh-uncountable billable hours that an IPO entails.
So as you see, a lot of people are getting rich off the Twitter IPO.
But there’s one group you don’t see: retail investors.
Retail investors enter the equation at the very end of a well-hyped IPO. Shares at the IPO price are locked up by institutional investors who hope to sell them at a (hopefully much) higher price to retail investors. IPOs are, really, the preserve of the ultra-rich.
If you really want to try to get a piece of the action, though, Private Briefing Editor Bill Patalon has put together a few ideas for his subscribers.
Note: You may not make out like Ev Williams on Twitter’s IPO, but Money Morning‘s tech guru Michael Robinson has already identified (and laid odds on) the next crop of thousand dollar tech stocks. If you buy now, you could see gains of up to 50%, 80%, even 300%.