Dutch Auction IPO

googleHere is a nice graphic from the NYTimes explaining the Dutch auction IPO. I think Google’s IPO will be a success, it will raise more money for Google than a traditional IPO with its high transactions costs (which flow to the investment banks). Remember the standard to measure success is the cost per dollar of raised funds it is not whether the stock price hits a predefined target and not whether the stock pops. Indeed, Google’s stock price is unlikely to pop. The success of a traditional IPO is often counted by the size of the pop but that is ridiculous. A pop means the firm left money on the table – money which was transferred to a handful of insiders who were allocated stock at the low IPO price. A pop is thus the sign of a bad IPO not a good one. The Dutch auction method ensures that the initial price is a market price (thus Google’s price is unlikely to plummet either). There has been a lot of negative publicity about the Google IPO but my guess is that this was stirred up by the investment banks who are fearful that their halcyon days are ending.


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