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This is correct, but I wonder how many people also consider the banks often price the IPO so they get a better deal than the public markets. Somewhere, everyone
by pedalpete 5y ago
This is correct, but I wonder how many people also consider the banks often price the IPO so they get a better deal than the public markets. Somewhere, everyone is always getting a cut.
- vmception 5y agoIPOs the banks already have bought all the newly created shares from the company in the company’s last funding round before being publicly traded, and attempts to generate public interest and sell the shares at a higher price. Keeping a percentage of the proceeds and a percentage of the shares and upfront fees.
- URSpider94 5y agoThat’s not accurate at all. Investment banks rarely participate in fund raising rounds. They don’t usually hold a stake in the company at all. The way they make money is typically by charging a 6% commission on the shares that are floated in the IPO. The higher the IPO price, the higher their commission.
- vmception 5y agoWhat do the underwriters do and are they not investment banks?
- URSpider94 5y agoInvestment banks are the underwriters. They do in fact buy the IPO shares from the company and re-sell them, but the mark-up for that resale is on a commission basis, customarily 6%. It’s not like they are buying the shares at price x and then trying to sell them at price y. The round is priced jointly between the underwriter and the IPO’ing company based on orders obtained during the road show.