The pop of an IPO is by design though. Bankers engineer the opening price lower than market so they can sell the stock pre-IPO to their rich clients and guarantee a quick return for them.
The games bankers like Goldman play with IPO pricing only benefit the bankers. 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.
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.
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.
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.
>"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?
Right, designed by the banks who underwrite the IPO -- not necessarily designed by the companies themselves, hence why a SPAC can look (to those companies) like the better option.
The whole sort-of-conflict-of-interest inherent in IPOs has been fascinating for me to learn about.
The games bankers like Goldman play with IPO pricing only benefit the bankers. The whole thing is bullshit, which is why more tech companies are looking for ways to cut bankers out of the process.