Re:Rigging the IPO game
by YokoZar on Sunday March 10, 2013 @03:53AM
(#5351108)
Is there a reason more companies don't do what Google did and simply sell the initial shares by dutch auction? Even without the perverse incentives, I can't see any possible advantage to hiring a wall street bank to guess a price and allocate it to only a fraction of the market.
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Google didn't do that, sadly. Their initial offering price was set by their underwriting bank, and most of the shares were distributed in the usual way. A small chunk of the shares were auctioned with the help of, IIRC, W.R. Hambrecht.
I suspect it is the same reason that people hire brokers to sell their houses.
* Hand holding through a new, high-risk process
* A scapegoat in case something goes wrong
Being underwritten by a well known and respected bank will raise your brand on the financial market. At least if you're not a Google or Facebook...
Aaand the Efficient Market Hypothesis takes another kick to the head. This is getting brutal, folks.
This is the 21st century. Startup CFOs need to start realizing that this is unnecessary and the democracy of the internet is more than enough to "raise your brand" legitimately.
There's no such thing as the democracy of the internet, that's just a new term for 'blogosphere.'
Google unfortunately got punished by the financial cartel for doing that. Remember the IPO price was initially at $120-$130. And then during the quiet period, where a company can't defend itself, Wall Street commenced its hazing ritual. People don't remember this now, because Google is seen as successful, but there was all sorts of negative press doubting its business model and saying it was overhyped, and so forth.
Google was then forced to lower the IPO price to $80 or so. It's hard to say for sure, but that probably wasn't a fair price, as the shares were trading for more than double within 6 months.
Although they were also trading for 4-5x not too shortly after that, since the company was in a spectacular growth phase at that time, so it is hard to say.
Re:Rigging the IPO game
by prostoalex on Sunday March 10, 2013 @06:46PM
(#5353879)
Someone needs to build out the auction infrastructure where all market participants (institutional buyers, high-net-worth individuals, retail investors) can participate. Until recently Wall Street investment banks had a stranglehold on high-net-worth individuals, but that's changing.
SecondMarket is probably in the best position to implement this - they already have access to trading activity of mature private companies, and while they don't do auctions, they do run order books for large lots.