[jonnycat]

My brokerage (Fidelity) does this for free. But the problem is not knowing about the IPO, it's getting an allocation. As a retail investor, it would seem my position size is not big enough to get any shares. I know this varies by brokerage, so this may or may not be typical of others.

If you could pool together retail investors to increase the possibility of getting shares allocated, that would be something special...

[basch]

It's not quite the same, but the ETF's; USA - IPO, FPX; and International - IPOS, FPXI, FPXE.

They buy IPO's after they launch, and then sell them after a set duration, automatically managing inflow of new and outflow of old. Youre not able to buy specific companies, youre instead buying into the idea, trends, and behaviors of IPOs as a whole. They also dont capture the huge initial jump in price.

Go with a 60:40 IPO:FPXI to capture all the ipo momentum in the world.

[nicoburns]

> They also dont capture the huge initial jump in price.

I don't understand why this is allowed. Why don't they structure IPOs as an auction, such that the initial sale is at the market price.

[murgindrag]

Half corruption, but the surface argument is:

Companies want stability. If my plan is to raise $2 billion with an IPO, I want to be able to build a business knowing that money is coming in. With an auction, I wouldn't know how much money will come in. It might be $4 billion, or it might be $500 million.

The current structure has a financial intermediary who charges a premium to take the risk of a price DROP for me. I can shop around for who will give me the best price, and once I've got that locked in, I know my $2 billion will come in, and I can start building my engineering, marketing, etc. with the stability of a guaranteed check in the bank.

That stability is worth more than the premium.

[timcalhoun]

It can't be difficult to design an auction where the amount of $$ raised is set, with the "price" being the valuation (ie. what % of the company the investors are willing to own).

[sokoloff]

That’s basically how Treasuries are auctioned. The problem for an individual company is I might be interested to IPO only under certain terms and be willing to pay a middleman to arrange that for the certainty. (The Treasury auction isn’t likely to move much and when it does, well, that’s the price-the government needs the cash to run; that’s not quite the same as a company who has other possibly viable options, including waiting.)

[0] - https://www.treasurydirect.gov/indiv/research/indepth/res_au...

[shuckles]

Has anyone priced an option to cover the downside risk of an auction? Is it really the expected value of what people leave on the table from an underpriced IPO?

[thedufer]

> Why don't they structure IPOs as an auction, such that the initial sale is at the market price.

Why do you think this would work? Google IPOed with a dutch auction, and went on to pop 30% in the first 2 days.

An auction allows you to find a market-clearing price, but does not allow the information-exchange to do proper price discovery, so it doesn't solve the problem. The IPO pop is typically explained as the reward for taking the risk of buying an unpriced asset.

[lethoso]

On what basis do you think it should not be allowed?

[nicoburns]

It's basically a money grab for the people who are allowed to participate in the IPO. And those people aren't providing anything of value in return.

[bozoUser]

Is the advantage of getting an allocation purely that the said investor buys the said stock at the price that is agreed upon in the price range of the filings with NASDAQ/NYSE ?

Also are these investors usually the HNW individuals who typically invest Millions thru the investment banking firms that are underwriting the said IPO, so win/win for the HNW and the banking firm in the way that it can guarantee the IPO'ing company that it can confidently underwrite and is also using the HNWs money to cover most of the risk ?

Please correct me if I am wrong in understanding this complex process.

[jonnycat]

Yes, the advantage is getting the actual IPO price, rather than buying on the open market. For example, BYND IPO'd at $25, but shares hit the open market in the mid $40s (and climbed very quickly into the $60s). That kind of performance is obviously not guaranteed, but is not exactly atypical for hot offerings.