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Companies with limited name recognition outside of their industry--Okta comes to mind--may not be able to scare up enough liquidity in the marketplace to absorb
by gjem97 10y ago
Companies with limited name recognition outside of their industry--Okta comes to mind--may not be able to scare up enough liquidity in the marketplace to absorb the millions of shares on offer by the company. A true unrestricted dutch auction may end up going off close to zero. That's what the IPO roadshow is about, giving your pitch and soliciting bids for shares. The investment banks act as gatekeepers to these potential investors, and arguably getting face time with their clients is a large part of what the fees the company pays are for.
- jcfrei 10y agoCouldn't such an auction be performed entirely online? An online dutch auction where institutional and retail investors can buy shares in an online live auction? There might be some technical hurdles to solve to ensure everybody is updated while the auction is running but this would at least reduce the liquidity problem for these auctions.
- gjem97 10y agoYes, however I think the hard part is getting the attention and interest of the investors in the first place. The IBs also act as a quality signal in the other direction, too. That is, I, as a potential investor am more likely to invest if the deal is brought to me by Morgan Stanley than if presented on some startup platform. I'm not passing judgement on that mindset, I'm just pointing out that it is the case for a large percentage of those potential investors.