Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use IPO Price Negotiation Leverage
Transcript
- Lucas: Let's talk about something that doesn't get nearly enough attention in the IPO playbook: the actual negotiation over the offering price. Most founders assume the underwriters set the price and they just have to accept it. But the reality is, founders have more leverage than they realize, especially if they understand the mechanics of the bookbuilding process. Luna: Yeah, I think there's this myth that the bankers are the only ones with the data, the institutional relationships, the whole machine. But founders are sitting on something the bankers need: the willingness to walk away. Lucas: Exactly. And that's actually the core of it — the ability to say no. But let's ground this in something concrete. Take a company like Databricks, which earlier this year was valued at 188 billion in a private round. When they eventually go public — and they've been rumored to be preparing — the pricing negotiation will be a masterclass in leverage. Luna: Right, because they have a massive private valuation already, and they've got the kind of revenue growth that makes institutional investors hungry. But also, they've seen what happened to some late-stage tech companies that went public at a discount to their last private round. Lucas: That's the so-called 'down round IPO,' and it's actually become more common in the past two years. So the question is: how do founders avoid that? And the answer is tied to three specific levers they can pull during the roadshow. Luna: Okay, I want to hear these three levers. But first — let's quickly acknowledge that this whole conversation only matters if the market is open for IPOs at all. And right now, it's a mixed bag. Mega-cap tech is down — Meta's off more than five percent in the past five days, Google's down three and a half — but NVIDIA is up two percent. So there's rotation, but not panic. Lucas: That's actually the perfect setup for this. In a market that's not uniformly hot, the pricing negotiation becomes even more important. Because if the window is slightly open, you want to get through it at the best possible price, not just any price. Lucas: So, lever number one: manage the order book actively. Founders and their CFOs should be in the room — or on the Zoom — when the underwriters are taking indications of interest from institutional investors. They should know who's buying, at what price, and for how many shares. And they should be pushing back on the underwriters if too much of the demand is coming from 'flippers' — investors who will sell on day one. Luna: So it's not just about total demand, it's about quality of demand. Long-term holders versus short-term traders. I've heard that some founders require a six-month lockup from certain investors as a condition of allocation. Lucas: That's exactly right, and it's becoming more common. Lever number two: use the greenshoe — or overallotment option — strategically. The standard greenshoe is 15 percent of the offering size. But founders can negotiate who gets those extra shares and at what price. If you allocate the greenshoe to investors who are price-sensitive, you can actually create a floor for the stock in the aftermarket. Luna: Interesting. So rather than just letting the underwriter decide, the founder says, 'I want this specific set of investors to have the option to buy more at the offer price.' That creates stability. Lucas: Exactly. And the third lever is timing the filing window. This is the one that's most dependent on market conditions. Founders should be monitoring the market every day during the roadshow. If the S&P 500 has a bad week, you might want to extend the roadshow by a few days or even lower the range proactively. But if there's a sudden rally — like we saw with ai related names last month — you can accelerate and tighten the range upward. Luna: And this is where having a good CFO and a strong relationship with the lead underwriter matters. Because you need real-time data and the ability to make a decision quickly. Lucas: Right. And look, the one thing that's changed the leverage dynamic dramatically is the rise of alternatives to the traditional IPO — direct listings and SPACs. When a founder can credibly say, 'If you don't give me a fair price, I'll go public via a direct listing or merge with a SPAC,' the underwriters listen. Because they don't want to lose the fee. Luna: That's a huge shift. Even just five years ago, the underwriters had a near-monopoly on the path to going public. Now, with direct listings on NYSE and NASDAQ, and with SPACs still around even after the regulatory tightening, founders have options. Lucas: And that optionality is real leverage. I talked to a founder recently — I can't name the company — who told me that during their roadshow, they literally had a SPAC sponsor on speed dial. They never used it, but the underwriters knew about it. And the pricing ended up being at the top of the range. Luna: It's like having a competing bid in any other negotiation. So the lesson is: don't just rely on the bankers to tell you what the price should be. Do your own homework, cultivate alternative paths, and be willing to walk. Lucas: And on that note — and I say this because we think about leverage and options a lot on this show — we deliberately keep this podcast free of sponsors and ads. No one's paying us to pitch a product. If you find that useful and want to support the choice to keep it ad-free, the link is buy me a coffee dot com slash fexingo. That's it — no pressure, no perks. Just a way to keep this independent. Luna: Yeah, and I think that independence matters especially for a show like this, where we're talking about real negotiation tactics. If we were taking money from investment banks, would we be as honest about the leverage founders have? Probably not. Lucas: Exactly. So back to the practical side. Let's talk about one more nuance: the role of anchor investors. In many IPOs, especially in Asia and Europe, anchor investors are brought in before the roadshow even starts. In the US, it's less formalized, but it's becoming more common. Founders can pre-sell a significant chunk of the offering to a few large, reputable long-term investors — like a Fidelity or a T. Rowe Price — at a price that's negotiated directly. Luna: And that sets a floor. If the anchor commits at a certain price, the underwriters can't really price below that. It's a de facto minimum. Lucas: Right. And the anchor also sends a signal to the market. If a respected institution is buying at, say, 30 times forward revenue, then other investors think, 'Okay, that's the benchmark.' So founders who invest time in building relationships with these large asset managers before the IPO process starts have a real advantage. Luna: It's almost like a pre ipo private placement, but with a commitment to buy at the IPO price. The founder gets price discovery and certainty, and the anchor gets allocation and a potential discount. Lucas: Exactly. And the key is that the founder — not just the bankers — should be the one cultivating those relationships. Because at the end of the day, the founder is the one who has to live with the outcome. The bankers move on to the next deal. Luna: So, to wrap up the three levers: active order book management, strategic use of the greenshoe, and timing the filing window. Plus the broader point about having a credible alternative path. That's a pretty actionable framework. Lucas: I think so. And one final thought: the market environment we're in right now — July 2026 — actually favors founders who are prepared. Volatility creates opportunity. When the market is calm, everyone agrees on price. When it's choppy, the informed party has the advantage. And if you're a founder who understands these mechanics, you're the informed party. Luna: That's a good note to end on. Next time, maybe we can talk about how these dynamics play out specifically in the biotech sector, where IPOs are often based on clinical trial data rather than revenue. That's a whole different animal. Lucas: That's a great idea. For now, thanks for listening. Luna: Yeah, and if you want more episodes like this, you know where to find us.