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> The whole thing is bullshit, which is why more tech companies are looking for ways to cut bankers out of the process. Google IPOed with a dutch auction. I ha

> The whole thing is bullshit, which is why more tech companies are looking for ways to cut bankers out of the process. Google IPOed with a dutch auction. I have absolutely no idea why other companies trying to "cut bankers out of the process" don't follow suit.

harryh 6y ago
Investment Bankers are performing a service for companies that IPO. For this service they get paid. One of the ways that they get paid is buy allocating IPO shares to favored clients. If you change the system so that they cannot get paid this way, then they will end up getting paid another way: higher fees. Is that worth the tradeoff? Maybe. But it's very unlikely that there is a free lunch to be had here.
- nordsieck 6y ago
  > Investment Bankers are performing a service for companies that IPO. Sure. But that service is largely marketing. They do a roadshow and talk up your company to everyone who will listen. That's certainly a valuable service. I'm sure it's even worth it to many companies. I don't really see how it's that useful for well known B2C companies (e.g. Facebook and Tesla).
  - chii 6y ago
    private investors may know these famous companies like Tesla, but they may not know the details of their business operations. The investment bankers create a prospectus which describes the "story" of how these companies plan to make money, present financials in a way that is understandable (albeit likely an optimistic way), and then sell the investment as an opportunity. For doing this work, the bankers do get paid handsomely. Whether this work results in a better investment price for said company remains to be determined tbh, but on the whole, i suspect it must be net positive, otherwise this method of IPO won't have continued for a century.
    - bogomipz 6y ago
      >"The investment bankers create a prospectus which describes the "story" of how these companies plan to make money, present financials in a way that is understandable (albeit likely an optimistic way), and then sell the investment as an opportunity." How different are these prospectus from the reports that the companies already provide to their investors and boards though? I guess I'm asking isn't that "story" already written for them?
lmm 6y ago
> Google IPOed with a dutch auction. I have absolutely no idea why other companies trying to "cut bankers out of the process" don't follow suit. It didn't seem to save them any money. The bids they got all clustered tightly together, the advisory fees they ended up paying were pretty much the same. And economic theory suggests that a Dutch auction gets you worse prices than a conventional auction. All told it didn't go particularly well for Google. I think it's more likely we'll see more companies doing Spotify/Slack-style direct listings (covid notwithstanding) - those seem to have worked out well enough, and have the potential to cut a bunch of fees out of the process.

harryh 6y ago

Investment Bankers are performing a service for companies that IPO. For this service they get paid. One of the ways that they get paid is buy allocating IPO shares to favored clients. If you change the system so that they cannot get paid this way, then they will end up getting paid another way: higher fees. Is that worth the tradeoff? Maybe. But it's very unlikely that there is a free lunch to be had here.

nordsieck 6y ago
> Investment Bankers are performing a service for companies that IPO. Sure. But that service is largely marketing. They do a roadshow and talk up your company to everyone who will listen. That's certainly a valuable service. I'm sure it's even worth it to many companies. I don't really see how it's that useful for well known B2C companies (e.g. Facebook and Tesla).
- chii 6y ago
  private investors may know these famous companies like Tesla, but they may not know the details of their business operations. The investment bankers create a prospectus which describes the "story" of how these companies plan to make money, present financials in a way that is understandable (albeit likely an optimistic way), and then sell the investment as an opportunity. For doing this work, the bankers do get paid handsomely. Whether this work results in a better investment price for said company remains to be determined tbh, but on the whole, i suspect it must be net positive, otherwise this method of IPO won't have continued for a century.
  - bogomipz 6y ago
    >"The investment bankers create a prospectus which describes the "story" of how these companies plan to make money, present financials in a way that is understandable (albeit likely an optimistic way), and then sell the investment as an opportunity." How different are these prospectus from the reports that the companies already provide to their investors and boards though? I guess I'm asking isn't that "story" already written for them?

lmm 6y ago

> Google IPOed with a dutch auction. I have absolutely no idea why other companies trying to "cut bankers out of the process" don't follow suit. It didn't seem to save them any money. The bids they got all clustered tightly together, the advisory fees they ended up paying were pretty much the same. And economic theory suggests that a Dutch auction gets you worse prices than a conventional auction. All told it didn't go particularly well for Google. I think it's more likely we'll see more companies doing Spotify/Slack-style direct listings (covid notwithstanding) - those seem to have worked out well enough, and have the potential to cut a bunch of fees out of the process.