I apologise for this morning’s post on IPOs. It was one of those posts I’d thought up in my head a long time ago, and got down to writing only today, because of which I wasn’t able to get the flow in writing.
So after I’d written that, I started thinking – so if IPO managers turn out to be devious/incompetent, like LinkedIn’s bankers have, how can a company really trust them to raise the amount of money they want? What is the guarantee that the banker will price the company at the appropriate price?
One way of doing that is to get the views of a larger section of people before the IPO price is set. How would you achieve that? By having a little IPO. Let me explain.
You want to raise money for expansion, or whatever, but you don’t need all the money now. However, you are also concerned about dilution of your stake, so would like to price the IPO appropriately. So why don’t you take advantage of the fact that you don’t need all the money now, and do it in stages?
You do a small IPO up front, with the sole purpose of getting listed on the country’s big exchanges. After that the discovery of the value of your company will fall into the hands of a larger set of people – all the stock market participants. And now that the market’s willingness to pay is established, you can do a follow on offer in due course of time, and raise the money you want.
However, I don’t know any company that has followed this route, so I don’t know if there’s any flaw with this plan. I know that if you do a small IPO you can’t get the big bankers to carry you, but knowing that some big bankers don’t really take care of you (for whatever reason) it’s not unreasonable to ditch them and go with smaller guys.
What do you think of this plan?