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AthenaHealth, a company that sells software to doctors to manage their billing and other office tasks, is just the latest company to appear cheated by the IPO process: It's bankers helped it price the stock at $18, but by the end of the first day of trading, it was at $35.50.
That suggests the Watertown, Mass company could have sold its shares for much more, say $25 or $30, and still had decent demand from investors.
Here's the quick math: It sold 6.19 million shares in the IPO, so had it judged the market more accurately, it could have brought in an extra $72 million had its banks helped it price a little higher. For a company losing $10 million a year, and with a feather-weight revenue of $80 million (see its prospectus for more), that's a big deal.
Now, predicting a market price is difficult to do. And the responsibility for the pricing decision remains the company's. But the banks, in this case Goldman Sachs and Merrill Lynch, have huge sway in the process, and have an interest in keeping a price artificially low. They get to turn around and sell the low stock to their favorite clients, giving them a huge pop for a profit -- ensuring those clients will come back and do business with the banks.
This is just the latest sign that companies should look more closely at the OpenIPO auction process, pioneered by WR Hambrecht, which instead lets the market decide on the company's price before the IPO. By opening the process to auction, it can factor in other demand trends (Dan Primack has more on what these may have been, in Athena's case) that a closed-book ibank process can't. The OpenIPO is what the stubbornly independently minded co-founders at Google did, after consulting with smart minds, but few others seem to have the guts.
AthenaHealth company had raised $50 million in funding from Oak Investment Partners, Draper Fisher Jurvetson, Venrock, and Cardinal Partners. The venture firms should be taking a closer look at the IPO process too.
Correction: An earlier version of this story incorrectly said the venture firms had sold part of their holdings in the IPO. They did not.