Summary of In Defense of the IPO, and How to Improve It

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In Defense of the IPO, and How to Improve It summary

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While the initial public offering is still the most favored vehicle by which new companies can tap the equity markets, entrepreneurs now have a range of options, including direct listings, special purpose acquisition companies and IPOs. Nonetheless, “going public” remains a complex process, and stakeholders need to thoroughly understand the mechanics behind it. Equity professionals Alex Rampell and Scott Kupor investigate changes in the financial landscape and offer strategic insights to financial professionals, investors and entrepreneurs.

About the Authors

Alex Rampell and Scott Kupor are partners at Andreessen Horowitz.

Summary

The initial public offering has its detractors, but it remains the primary platform for companies “going public.”

The IPO is a staple mechanism by which a new company raises capital in the public markets. Yet underwriters can set an IPO list price too low, and with typical investor demand often reaching 50 times the amount of shares issued, the stock can roar to the upside by a factor of 50% to 200%. The upshot is the impression that the company could have captured more capital had the IPO been priced correctly. 

Critics point to this as evidence that Wall Street purposely sets the equity price...


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