Pre-IPO stock: an ‘earnout’ that can actually pay out

Contact: Scott Denne

Investors in Coupons.com aren’t the only ones who stand to benefit from the 100% rise in its IPO today. The company’s M&A targets are set up for a big gain as well. Investors in Yub, a digital loyalty card vendor, have seen the value of their exit to Coupons.com triple in the span of two months.

Yub sold to Coupons.com in January for $10.1m in common stock (valued at $10.05 per share). As of this afternoon, Coupons.com trades at $32 per share, valuing the Yub stake at $32m. In fact, Yub’s backers, including Battery Ventures, Greylock Partners and QuestMark Partners, are seeing a bigger pop than investors that funded Coupons.com’s last round of private funding – a June 2011 series B at $13.73 per share.

There’s a downside to relying on the jump in a pre-IPO acquisition. In addition to being at the mercy of the public markets, shareholders have to sweat out a six-month lockup period before cashing out. The 11 companies acquired by Twitter in the year leading up to its IPO saw the value of their exits jump 2-4x since. MoPub, for example, sold for $350m in Twitter stock that’s now valued at $797m, which will make for some happy VCs (MoPub raised just $18m) if the price holds up for the next two months.

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