IPOs Get Bigger but Leave Less for Public Investors

As companies stay private longer, public investors miss out on gains

Twitter’s initial public offering in New York on Nov. 7, 2013Photograph by Scott Eells/Bloomberg

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By Peter Coy

July 24, 2014 at 9:41 PM UTC

This article is for subscribers only.

This article is part of the July 28, 2014 issue of businessweek.

Initial public offerings used to offer investors chances to get in on the ground floor of young, fast-growing companies. There was risk, of course, but also the possibility of enormous rewards. Amazon.com went public in May 1997, less than three years after it was incorporated, and has since returned almost 24,000 percent to people who got in at the IPO price.

These days IPO investors are more likely to get in somewhere around the sixth floor, when companies are well beyond infancy and maybe approaching middle age. Alibaba Group Holding, the Chinese Internet giant, is a case in point. Founder Jack Ma has waited 15 years to take it public, raising money along the way from Yahoo! and SoftBank. The company’s IPO on the New York Stock Exchange later this year could value it at $150 billion, making it the biggest in U.S. history.