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Both of those are meaningless to a company when compared to having 30% more money to devote to their projects. Because of lockups, the IPO pop is irrelevant to

Both of those are meaningless to a company when compared to having 30% more money to devote to their projects. Because of lockups, the IPO pop is irrelevant to employees and most insiders, whose proceeds are usually determined by the stock's value six months from IPO. The first point amounts to one good press cycle. You can get that other ways and the lasting value of a single cycle of fluffed up good press based on underwriters and their cronies making money on their shares is nil. The second is entirely the underwriter's problem. A company only IPOs once; there's no reason for them to take a hit to help the underwriter and friends make money for no reason. The underwriter takes a cut and a fee regardless.

mason55 9y ago
> The second is entirely the underwriter's problem. A company only IPOs once; there's no reason for them to take a hit to help the underwriter and friends make money for no reason. The underwriter takes a cut and a fee regardless. Think of it as an additional cost of underwriting just broken out in a weird way and it might be more palatable. If you want a lot of interest in your IPO then you probably need underwriters with big institutional relationships. The underwriters with the best relationships are going to be the ones who help their clients get good returns. You're just paying for better underwriters by losing part of the pop instead of paying them fees directly. Companies are free to go to smaller underwriters in exchange for an IPO price that's closer to what the underwriter thinks the market will bear. And yet most of them choose not to. Given that almost every IPO has a pop, what do you think is most likely * CEOs & VCs taking their companies public don't realize that they are leaving money on the table by underpricing the IPO. You have two groups of sophisticated finance people and the underwriting side always manages to fleece the company going public. * There are structural reasons and incentives for creating an IPO pop You can't even accuse people of trying to fleece the low-level employees and retail investors. The employees are locked up either way and whether you have a pop or not, by the time the shares reach the retail investors they're the same price either way.

mason55 9y ago

> The second is entirely the underwriter's problem. A company only IPOs once; there's no reason for them to take a hit to help the underwriter and friends make money for no reason. The underwriter takes a cut and a fee regardless. Think of it as an additional cost of underwriting just broken out in a weird way and it might be more palatable. If you want a lot of interest in your IPO then you probably need underwriters with big institutional relationships. The underwriters with the best relationships are going to be the ones who help their clients get good returns. You're just paying for better underwriters by losing part of the pop instead of paying them fees directly. Companies are free to go to smaller underwriters in exchange for an IPO price that's closer to what the underwriter thinks the market will bear. And yet most of them choose not to. Given that almost every IPO has a pop, what do you think is most likely * CEOs & VCs taking their companies public don't realize that they are leaving money on the table by underpricing the IPO. You have two groups of sophisticated finance people and the underwriting side always manages to fleece the company going public. * There are structural reasons and incentives for creating an IPO pop You can't even accuse people of trying to fleece the low-level employees and retail investors. The employees are locked up either way and whether you have a pop or not, by the time the shares reach the retail investors they're the same price either way.