A number of sources (Financial Times, Business Insider & NYT, among others) today have reported on the "Alice-in-Wonderland" nature of the mis-priced IPO. One saw this a lot in the 1998 - 2000 bubble: founding teams exulting at the fact that the first trade post-IPO was a huge "pop" over the offering price, as if it was a good thing. Didn't they realize that large amounts of money had been taken out of their pockets and given -- for free and future favors -- to the investment bankers and their buy-side clients? It's amazing -- and the LinkedIn team is VERY sophisticated. Why W.R.Hambrecht & Co.'s auction model for underwritings has not been more successful is a mystery to me (although, I have to believe that some of it stems from lots of behind-the-scenes opposition to it from the traditional investment banks who profit so handsomely from the status quo).
[Addendum to the original post: my friend, Henry Blodget, reminds me that at least one of the substantive reasons that the auction model hasn't taken off is that it only works for hot deals. Most deals, it turns out, still do have to be manually sold -- via institutional salesforces -- and one must, in fact, offer a modest discount to make the sale. But, as Henry points out, there's a hell of a big difference between a 15% discount and half-price. It's the latter that is outrageous.]
The astounding thing is that this is not a secret, or something new. I was a securities lawyer for almost 20 years. I would always tell my clients as we started the IPO process: "Throughout this process, you will mistakenly feel that you are the client. Only on the pricing call with the underwriters will you realize that you are merely the product, and that the buy-side funds are the clients."