If you’re at the poker table and don’t know who the patsy is — you’re the patsy” — Warren Buffet
The first step in an IPO is getting indications of interest. The highest indication of interest is the willingness to take shares at market.
The goal is to be 10x to 20x subscribe so It should not be surprising that the price pops after the IPO. It makes no sense that companies are happy about this. It’s like selling your house to a broker for $50 then waking up the next day and learning It was sold for $100 and being happy about It.
These companies are losing huge amounts of value because of the IPO price pop that banks try to create
IPO data over 10 years:
Green shoe: fail safe for the banks
They oversell they IPO by 15% and if the price goes up they have the 15% of the shares in hand to sell to the buyer for a profit. If the price goes down they buy the shares in market for cheaper than the IPO price and sell to buyer for profit.
Banks no longer have skin in the game with IPO’s — all are best efforts
Direct listings do price-time matching which allows retail investors equal access. This is how bonds are priced. This removes unfair advantages that investment banks offer to certain clients
Road shows should be a thing of the past, unnecessary with technology and unfair for certain investors
The main things stopping companies from doing direct listings are intelligence and courage
Lockup leads to volatility because there is a low float and the potential for a mass sale of shares on a single day
Direct listings take out the factor of nepotism, allowing investors anonymous access