Bring back the Dutch Auction IPO
Broadband router company BigBand went public today, and its stock rose 33 percent on its first day of trading, which everyone said was a good thing.
Scott Sweet, managing director of IPOBoutique.com said it was “particularly impressive.”
But it means the company could have sold its shares at a price say, 25 percent higher — and still have given public investors a decent pop of a few percentage points in reward for buying the new stock. In other words, Bigband loses because it could have pocketed at least $35 million more. The investment bankers taking BigBand public priced it too low.
Or at least, so it seems now. You never know. The investment banks screwed up the IPO of WiMax company Clearwire last week, taking that company public at a price that was too high — either that, or bankers and their clients didn’t buy enough stock to support it in the early hours after the IPO.
We should bring back the Dutch Auction, the method of IPO where shares are bid on beforehand so the market demand is assessed, vastly diminishing the risk of volatility after the IPO. That’s the process Google used (see story at the time), and while Google’s IPO saw some rocky stages early on, they weren’t a result of the Dutch Auction procedure per se.
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About the Author, Matt Marshall
Matt launched VentureBeat in September of 2006, with the realization that no one else was covering the entrepreneurial and tech innovation scene with the velocity or depth that he was. Prior to founding VentureBeat, he covered venture capital for the San Jose Mercury News from 2001 to 2006. In 2002, Matt was awarded "Journalist of the Year" by the Northern California Society of Professional Journalists. Prior to working at the Merc, he was a correspondent for the Wall Street Journal in Bonn, Germany from 1995 to 1998, and a writer for the Washington Post in 1994. Matt holds a PhD in Government and an MA in German and European Studies from Georgetown University. In addition to VentureBeat, Matt is also the Executive Producer of DEMO, the leading launchpad event for emerging technologies.
