The IPO Process – It Is Time to Fix It

Albert Wenger has a great post up on the IPO Process. I have complained abot it on this blog for years. The meat:

In the year 2016 here is how a company should go public. The company, with the help of banks, brokers and the exchange should build a complete buy and sell order book. The IPO price and the opening trade should be one and the same. To help facilitate this, the float should be meaningful, requiring both a primary and secondary component to the IPO.

With the Internet there is no excuse for doing it any other way. Yes, once upon a time information dissemination and gathering were expensive and trading was slow. But today neither one of those conditions applies any more. So why are we still doing IPOs the old, pre-Internet way? Because investment banking is a highly concentrated industry which benefits massively from the status quo, as do a select group of investors.

In the absence of a competitive solution, regulators should mandate a larger initial float which will force building a complete book. If there is no market clearing price, well then the IPO doesn’t happen (this takes care of the “but we also buy the bad companies” non-argument — bad companies should *NOT* go public).

The top five companies in the world are now all technology companies:


On the other side of the spectrum – banks (the spectrum of hoarding)…I give you Deutsche Bank. Since 2009 Deutsche Bank has paid $19.3 billion in bonuses. That is $2 billion MORE than it’s current market cap.

No wonder our IPO system is broken. The banks like the old system. They have very few jobs left to do that easily make THEM money.

One of the reasons I have put Tesla on my do not touch list is Elon Musk’s latest Goldman Sachs partnership to sell his stock and raise money. I believe it is money he could have raised using crowdfunding.

The public markets will continue to shrink until we fix this system.

It’s time for the tech leadership to figure this out and save the public markets from becoming mostly private.