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A big (and important) reason IPOs are frequently priced below where they open is that the underwriter is try to ensure that the IPO is fully subscribed. If the
by dnadler 10y ago
A big (and important) reason IPOs are frequently priced below where they open is that the underwriter is try to ensure that the IPO is fully subscribed. If the IPO opens below the IPO price, then the new shareholders won't be too pleased, and will be less likely to purchase shares of the next IPO.
Too many investors losing money on IPOs --> less demand for IPO shares --> less capital available to (generally) smaller companies.
On the other hand, if investors are constantly making money from IPOs, there will be much more demand in the future, and capital will be much easier for these companies to access.
- pilom 10y agoBut why should Twilio care about the next guy in line? Their job is to get the best deal on capital they can get and giving some of that available capital to the underwriters is a bad idea from a shareholders perspective.
- akgerber 10y agoThese days, the purpose of an IPO is as much or more to provide liquidity to insiders as it is to actually raise capital.