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But classic econ 101 would also say that if the above was true, then everybody who thought the shares were worth only $15 (plus spread) would sell, resulting in
by tomp 10y ago
But classic econ 101 would also say that if the above was true, then everybody who thought the shares were worth only $15 (plus spread) would sell, resulting in share price dropping back to around $15.
I think you're wrong. My reasoning is simple. If the IPO investors thought that the company was worth less than $24 (e.g. $16), they would have sold already, and the price would have dropped. If they thought the company is worth $24 (or more), they would have bought the IPO at any price between $16 and $24 (minus spread) as well.
Really, the only argument for under-pricing the IPO is as a favor to the banks/hedge funds. But the question is, did the banks ever return the favor?
- whatok 10y agoI think it's very hard to argue that day 1 or near-term price action on any IPO is solely based on value instead of sentiment.
- eldavido 10y agoIsn't there some law that all investors buying stock at around the same time have to be offered the same terms? I'm not a lawyer but I think this is part of what's behind the trend toward convertible notes in company financing in SV, compared to the traditional priced equity round -- too hard to give a different deal to different investors, for what amounts to the same shares? Would love to hear more from someone who knows more about this.