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So absent a banker, how are they gonna price their offerings? A bank does have Avery large book of institutions who are covered by active reps. A startup does

by JackFr 6y ago

So absent a banker, how are they gonna price their offerings? A bank does have Avery large book of institutions who are covered by active reps. A startup does not have a mechanism in place to run a road show, gauge investor interest and ultimately price the deal. While leaving a ton of money on the table is a legitimate complaint, pricing and selling a deal isn’t a simple problem.

sqrt17 6y ago
Google did an auction: https://www.cnbc.com/2014/08/19/es-took-off-but-the-auction-didnt.html https://www.cnbc.com/2014/08/19/es-took-off-but-the-auction-... For many pricing problems, auctions are the answer. Doing a roadshow and tickling investor's interest is a separate problem, but many startups already have a size where they are well-known to a big enough share of investors.
- egwor 6y ago
  There’s a lot of auction theory that comes into play that an individual investor is unlikely to know and I would imagine a startup may not fully comprehend either. I would worry that this is still not a level playing field.
  - whatshisface 6y ago
    This will force investment banks to have an underwriting fee no greater than the expected loss due to the company not understanding "auction theory." Also, any investor that doesn't think they understand auctions can simply wait a day and receive the exact same opportunity that an investment bank would give.
- bostonfincs 6y ago
  Google still used Morgan Stanley to run the book, the auction was just for better pricing doesn’t solve the rest of IPO worries at all.
semiquaver 6y ago
In cases where the direct listing does not raise new capital (all of them so far) this is easy. You conduct the same sort of auction at the beginning of the first trading day that occurs for every stock every morning.
snowwrestler 6y ago
This rule does not forbid the hiring of banks to do all or any of these things. It just gives companies the option not to. I expect this will improve both service and pricing from banks for work related to IPOs in the long run, as they now have to prove their value in absolute terms, not just vs competing banks.
fakedang 6y ago
You could just avoid the big banks and go for a smaller boutique that seeks to maintain its reputation with a companies first policy. The bigger banks are usually chummy with all institutional investors and will certainly pull shit to make a higher profit. An elite boutique bank, or a reputed banker running the show, can work wonders. For tech, one such bank is Qatalyst, for healthcare it's Centerview, like that, for instance. Even better if they can run an auction process for you. That being said, the number of good "reputable" bankers is increasingly declining as they've soon realized they could make much more money on the investing side. There is a serious dearth of excellent bankers and a lot of mediocre bankers. This policy could not have come at a better time, if not earlier.
pg_bot 6y ago
It is a simple and solved problem, you run a dutch auction (Google did it).
paxys 6y ago
You can hire the bank to price your shares but still sell them directly. That's what Spotify, Slack, Asana, Palantir did.

by JackFr 6y ago

sqrt17 6y ago

Google did an auction: https://www.cnbc.com/2014/08/19/es-took-off-but-the-auction-didnt.html https://www.cnbc.com/2014/08/19/es-took-off-but-the-auction-... For many pricing problems, auctions are the answer. Doing a roadshow and tickling investor's interest is a separate problem, but many startups already have a size where they are well-known to a big enough share of investors.

egwor 6y ago
There’s a lot of auction theory that comes into play that an individual investor is unlikely to know and I would imagine a startup may not fully comprehend either. I would worry that this is still not a level playing field.
- whatshisface 6y ago
  This will force investment banks to have an underwriting fee no greater than the expected loss due to the company not understanding "auction theory." Also, any investor that doesn't think they understand auctions can simply wait a day and receive the exact same opportunity that an investment bank would give.
bostonfincs 6y ago
Google still used Morgan Stanley to run the book, the auction was just for better pricing doesn’t solve the rest of IPO worries at all.

semiquaver 6y ago

In cases where the direct listing does not raise new capital (all of them so far) this is easy. You conduct the same sort of auction at the beginning of the first trading day that occurs for every stock every morning.

snowwrestler 6y ago

This rule does not forbid the hiring of banks to do all or any of these things. It just gives companies the option not to. I expect this will improve both service and pricing from banks for work related to IPOs in the long run, as they now have to prove their value in absolute terms, not just vs competing banks.

fakedang 6y ago

You could just avoid the big banks and go for a smaller boutique that seeks to maintain its reputation with a companies first policy. The bigger banks are usually chummy with all institutional investors and will certainly pull shit to make a higher profit. An elite boutique bank, or a reputed banker running the show, can work wonders. For tech, one such bank is Qatalyst, for healthcare it's Centerview, like that, for instance. Even better if they can run an auction process for you. That being said, the number of good "reputable" bankers is increasingly declining as they've soon realized they could make much more money on the investing side. There is a serious dearth of excellent bankers and a lot of mediocre bankers. This policy could not have come at a better time, if not earlier.

pg_bot 6y ago

It is a simple and solved problem, you run a dutch auction (Google did it).

paxys 6y ago

You can hire the bank to price your shares but still sell them directly. That's what Spotify, Slack, Asana, Palantir did.