Initial public offering

In financial markets, an initial public offering (IPO) is the first sale of a company's common shares to public investors. The company will usually issue only primary shares, but may also sell secondary shares. Typically, a company will hire an investment banker to underwrite the offering and a corporate lawyer to assist in the drafting of the prospectus.

Auction

A venture capitalist named Bill Hambrecht has attempted to devise a method that can reduce the inefficient process. He devised a way to issue shares through a dutch auction as an attempt to minimize the extreme underpricing that underwriters were nurturing. Underwriters however have not taken to this strategy very well. Though not the first company to use dutch auction, Google is one established company that went public through the use of auction (though its share price rose 17% in its first day of trading despite the auction method). Perception on IPOs can be controversial depending on one point of view. For those who view a successful IPO to be one that raised as much money as possible, the IPO was a total failure. For those who view a successful IPO from the kind of investors that eventually gained from the underpricing, the IPO was a complete success. This is because the auction closed with a knowledge that it was going to sell very close to the market price. This effectively would have discouraged speculators from bidding. When it later emerged that the stock was going to be way underpriced, Google never opened up the bidding which lead to the gain accruing to the long term investors.

Related Topics:
Bill Hambrecht - Dutch auction - Google

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