DoorDash Pop Stokes Renewed Debate on IPO Pricing to Perfection

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DoorDash Inc.’s stratospheric rise out of the IPO gate on Wednesday raises the age-old question: Did the company and its advisers leave money on the table?

DoorDash’s shares opened at $182, about 78% above its price in the initial public offering of $102. It closed trading up 86% giving it an eye-popping fully-diluted valuation of $71.3 billion, propelling it past the market value of well-known public companies Kraft Heinz Co., Lululemon Athletica Inc. and Ford Motor Co.

DoorDash’s first-day pop even played a role in Airbnb’s discussion about pricing its IPO above the marketed range, according to people familiar with the matter. An Airbnb representative declined to comment.

DoorDash’s IPO price was set by management and its advisers, Goldman Sachs Group Inc. and JPMorgan Chase & Co. Getting pricing right on an IPO can be controversial. If shares don’t pop after the initial price, or even fall, startups can be viewed as failures for not attracting investors.

But if shares rise a lot, like in the case of DoorDash, company insiders may be wondering why shares weren’t priced higher. A higher price would bring in more capital for the company.

DoorDash Chief Executive Officer Tony Xu acknowledged DoorDash did not choose the highest price possible in the deal. “We priced our stock where we did not take every last dollar off the table but where we feel like it is a true reflection of our fundamentals,” he told Reuters.

Another reason for the rise was that DoorDash sold only about 10% of its shares, making supply hard to come by on Wednesday.

Early-employees and other shareholders are prohibited from selling their stocks until the so-called lock-up period ends, usually several months after the IPO.

One DoorDash investor was excited to see it go public and less focused on where it priced the first day. “I’m not aware of any major investor who wanted to sell into the IPO,” said Saar Gur, a general partner at CRV who was one of DoorDash’s first investors. He added that it’s hard for DoorDash’s bankers to know where retail investors would be willing to buy DoorDash.

New System

The big stock jump came even though bankers used a new system aimed at giving them more information to gauge investor demand. The technology, whose aim is to modernize the IPO process, is supposed to appeal to high-growth companies that can be subject to wide differences in valuation among investors. It had been used before for the IPO of game development platform Unity Software Inc. and will be put to the test again in Airbnb’s IPO this week.

Under the system, DoorDash’s advisers let prospective IPO investors fill in their deal orders via an online portal, instead of with sales people, indicating their level of interest at any desired price, according to people with knowledge of the matter, who asked not to be identified because the details are private. A representative for DoorDash declined to comment on its pricing strategy.

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