The biggest reason is the rules of the exchanges. All exchanges have minimum requirements for the outstanding float, share price, market value,etc.

The rules aren't terribly stringent, and if you can stay above this then it might work.

The problem is no underwriter would take an IPO for a million shares at say $10/share. It's just not something that they can make money on.

This would require a new type of low cost underwriter.

Alos remember, the reason why we can set a price on the stock is that we know the float ahead of time and we can estimate what the company is worth.

How can you price a share if the amount of tradable shares is materially changing each day?

> The problem is no underwriter would take an IPO for a million shares at say $10/share. It's just not something that they can make money on.

If you're offering a small fraction of the outstanding float, you don't need an underwriter because you've elected to reduce your risk. If markets are unfavourable, you raise less. Oh well. You've kept plenty of shares to try again next time.

We need to get over this "go big or go home" mentality.

I see your point, the problem is that if you don't do a road show, then no fund is going to invest in you, with google/facebook hyped companies excepted.

With out an institutional investor( Buy side) your stock will have a hard time getting any traction.

The shares can be allocated but not offered.

I guess it depends on your definition of allocated and offered, but to the exchange, they have minimum requirements for what is offered on their exchange.

If the stock won't trade, they won't let it list, period:)

No one will buy your IPO if its going to be at market price. You'll need to add a discount. Why buy from an IPO and do more paperwork when you can buy from the market instantly?

Also each time you sell shares in an IPO you need to have people make lots of calls to institutional and other investors to determine the demand and thus proper pricing and supply of new shares. Having to do this everyday will be expensive. You (as a bank managing the IPO) also probably don't want to pester fund managers too much (They have to take care of other stocks in their portfolio, too), otherwise you'll have trouble doing IPOs for other companies.

EDIT: I take that last sentence back, it seems like they really want those IPOs regardless if the bank is a vampire squid, or not.

No reason at all, except the finance business is not very innovative in areas like raising capital for companies. It would be easy to have a structure like an ETF where brokers could get more issuance from a company if they had excess demand for shares.

Underwriting does get you what it says, a guarantee that they will take the whole allocation, which was the original reason for underpricing. There have been a few cases where underwriters lost a lot of money (eg the BP floatation in the UK), but usually the underwriting fee is pure profit, especially if you can get the launch undervalued, and there are usually options that make it pretty hard to lose money (as with Facebook).

I'm not sure what this solves. If I know that the stock will have less competitive bidding 4 days from now, I'm waiting.

I'm a firm believer that releasing all the shares and allowing the market to decide what they'll pay for the stock, based on their own valuation method, is the most efficient method.

yes, this is the most efficient method for getting market value for something (its almost tautologous); however, thats not the problem identified. the problem is determining a fair price for the ipo so that the company being listed brings in as much cash as they should. releasing all the shares at once determines a fair price quickly, but that doesnt help the company bring in more cash

Wouldn't the limited supply on the first day alter the value of those shares and skew everything?