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> "While much of Wall Street missed out on fees from that deal—a typical IPO has far more underwriters than a direct listing has advisers—the three were paid ab

> "While much of Wall Street missed out on fees from that deal—a typical IPO has far more underwriters than a direct listing has advisers—the three were paid about $36 million in total for their work on Spotify." Why does it cost so much to IPO?? $36 million for a cheap IPO seems excessive.

deleted 8y ago
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dave_sullivan 8y ago
Monopoly and the SEC. ICOs are such a big threat to the economy, the SEC has a "ICO desk" to track people down. Meanwhile, charging millions of dollars for boilerplate advice is business as usual and companies pay it because the SEC won't allow them to try anything else. SEC is a criminal organization themselves and they help keep the investment bankers wealthy through each economic boom while they contribute very little to the boom itself. Wall Street is a much bigger and more successful scam than crypto could ever hope to be.
- throwawaymath 8y ago
  Why did you inject all the stuff about ICOs and evil Wall Street into the discussion? There are credible ways to critique the cost of IPOs without devolving the discussion by calling the SEC a "criminal organization." Your comment strikes me as more ideological than critical.
  - dave_sullivan 8y ago
    Because it's topical and accurate.
    - awad 8y ago
      Thus far most ICOs have been _actual_ scams, so ironically, it's topical and accurate insofar as highlighting why IPOs are a lengthy and costly measure...
      - dave_sullivan 8y ago
        > it's topical and accurate insofar as highlighting why IPOs are a lengthy and costly measure And I'm saying they wouldn't have to be if it were not for a convenient relationship between the SEC and major investment banks. I mention ICOs to highlight the difference in treatment. There is something in between shady ICOs and hugely expensive IPOs and the banking industry has very little interest in discovering what that is because their salaries depend on it. I think my most basic point is just "It could be cheaper to raise money but investment banking prices are held artificially high through regulatory intervention". Make of that what you will.
        awad 8y ago
        I think that's actually a fair point and would agree with you on that wholeheartedly.
        regulation_d 8y ago
        I don’t quite follow. Legal and accounting fees are a fraction of the bank fees, but they’re what’s actually tied to the regulatory scheme.
throwawaymath 8y ago
Without condemning nor condoning the cost of IPOs in general: it's because it's very expensive to "make a market" for public consumption of a previously (ostensibly) unknown security. The modern model of IPOs may not be as applicable these days due to the rise of private equity, but the essence of the problem is that you're herding a lot of very expensive cats to do due diligence on a thing involving a lot of money. When you're deploying a small army of lawyers, investment bankers and accountants, the costs tend to add up really quickly. To respond to your specific question about the cost of the IPO in proportion to its size: there is a floor on how expensive a traditional IPO will be when all IPOs have a certain minimum amount of due diligence required. Even if the IPO itself is not remarkably large, there is something of an "activation level" that you'll pay just to initiate the process and get everything moving.
- econner 8y ago
  What kind of due diligence is required? Isn't the concern here mostly how the stock should be priced? And why then are private funding rounds so much cheaper to get done? Diligence still has to be done for private funding. Why is more diligence required for an IPO?
  - throwawaymath 8y ago
    It's hard to give a comprehensive answer to your first question since it would require so much background knowledge of valuation. But in short: > Isn't the concern here mostly how the stock should be priced? Yes, and this is extremely nontrivial :) There are many competing incentives and metrics to evaluate. Public investors want to buy at a discount relative to future growth. The company wants to get as much money as possible. Investment banks don't want to be associated with fraudulent or poor performing IPOs. They also want to ensure there is sufficient liquidity to make the market move on the new security when it's listed while making everyone happy. And aside from these logistical obstacles, you have the standard financial problem of price discovery and valuation for a security which is fundamentally new. As for these questions: > And why then are private funding rounds so much cheaper to get done? Diligence still has to be done for private funding. Why is more diligence required for an IPO? Private funding involves proportionately greater amounts of money from fewer overall investors. It does not as a rule involve the general investing public. By law public investments must be secure against a number of risks that can be accepted in private investments. You're offering a novel security to a large population of amateur investors who cannot tolerate as much risk as professional investors who either represent institutions or are independently wealthy. Insulating IPOs from that kind of risk requires a lot of due diligence.

deleted 8y ago

[deleted]

dave_sullivan 8y ago

Monopoly and the SEC. ICOs are such a big threat to the economy, the SEC has a "ICO desk" to track people down. Meanwhile, charging millions of dollars for boilerplate advice is business as usual and companies pay it because the SEC won't allow them to try anything else. SEC is a criminal organization themselves and they help keep the investment bankers wealthy through each economic boom while they contribute very little to the boom itself. Wall Street is a much bigger and more successful scam than crypto could ever hope to be.

throwawaymath 8y ago
Why did you inject all the stuff about ICOs and evil Wall Street into the discussion? There are credible ways to critique the cost of IPOs without devolving the discussion by calling the SEC a "criminal organization." Your comment strikes me as more ideological than critical.
- dave_sullivan 8y ago
  Because it's topical and accurate.
  - awad 8y ago
    Thus far most ICOs have been _actual_ scams, so ironically, it's topical and accurate insofar as highlighting why IPOs are a lengthy and costly measure...
    - dave_sullivan 8y ago
      > it's topical and accurate insofar as highlighting why IPOs are a lengthy and costly measure And I'm saying they wouldn't have to be if it were not for a convenient relationship between the SEC and major investment banks. I mention ICOs to highlight the difference in treatment. There is something in between shady ICOs and hugely expensive IPOs and the banking industry has very little interest in discovering what that is because their salaries depend on it. I think my most basic point is just "It could be cheaper to raise money but investment banking prices are held artificially high through regulatory intervention". Make of that what you will.
      - awad 8y ago
        I think that's actually a fair point and would agree with you on that wholeheartedly.
      - regulation_d 8y ago
        I don’t quite follow. Legal and accounting fees are a fraction of the bank fees, but they’re what’s actually tied to the regulatory scheme.

throwawaymath 8y ago

Without condemning nor condoning the cost of IPOs in general: it's because it's very expensive to "make a market" for public consumption of a previously (ostensibly) unknown security. The modern model of IPOs may not be as applicable these days due to the rise of private equity, but the essence of the problem is that you're herding a lot of very expensive cats to do due diligence on a thing involving a lot of money. When you're deploying a small army of lawyers, investment bankers and accountants, the costs tend to add up really quickly. To respond to your specific question about the cost of the IPO in proportion to its size: there is a floor on how expensive a traditional IPO will be when all IPOs have a certain minimum amount of due diligence required. Even if the IPO itself is not remarkably large, there is something of an "activation level" that you'll pay just to initiate the process and get everything moving.

econner 8y ago
What kind of due diligence is required? Isn't the concern here mostly how the stock should be priced? And why then are private funding rounds so much cheaper to get done? Diligence still has to be done for private funding. Why is more diligence required for an IPO?
- throwawaymath 8y ago
  It's hard to give a comprehensive answer to your first question since it would require so much background knowledge of valuation. But in short: > Isn't the concern here mostly how the stock should be priced? Yes, and this is extremely nontrivial :) There are many competing incentives and metrics to evaluate. Public investors want to buy at a discount relative to future growth. The company wants to get as much money as possible. Investment banks don't want to be associated with fraudulent or poor performing IPOs. They also want to ensure there is sufficient liquidity to make the market move on the new security when it's listed while making everyone happy. And aside from these logistical obstacles, you have the standard financial problem of price discovery and valuation for a security which is fundamentally new. As for these questions: > And why then are private funding rounds so much cheaper to get done? Diligence still has to be done for private funding. Why is more diligence required for an IPO? Private funding involves proportionately greater amounts of money from fewer overall investors. It does not as a rule involve the general investing public. By law public investments must be secure against a number of risks that can be accepted in private investments. You're offering a novel security to a large population of amateur investors who cannot tolerate as much risk as professional investors who either represent institutions or are independently wealthy. Insulating IPOs from that kind of risk requires a lot of due diligence.