Like Beluga caviar, investment in Initial Public Offerings is traditionally reserved for the wealthy elite. IPOVillage is changing all that (for IPOs, not caviar) by providing a platform in which companies use crowdfunding to raise the capital they need to go public.
The process of going public is extensive, with several intermediate stages and middlemen. First, a company must work with an investment bank to underwrite the offering. The underwriters facilitate the initial sale of shares at the agreed-upon initial price; the buyers at this stage are primarily institutional investors and the biggest clients of the underwriting banks. The institutional investors then resell the shares to retail investors on the open market — but by then, the stock price has usually risen significantly from its IPO price. A further layer comes into play if an investor buys stock through a retail brokerage firm, as many do, which adds further transaction costs.
As a result of all these transactions, the stock costs more for the general public than it does for the financial institutions and elite investors who have earlier access.
IPOVillage strives to grant early access to “everyday Joe,” so he too can be in on the ground floor.
“Our crowdfunding platform allows publicly traded companies to work directly with the public,” said Howard Orloff, the managing director of IPOVillage. “It makes it open to Mom and Pop. You don’t need to have $10 million in a Goldman Sachs account to have access to an IPO; you don’t need to get favors from people. It is a completely democratic, first-come, first-serve opportunity to partake in pre-IPO pricing. This is true equity crowdfunding.”
IPOVillage acts as a portal where retail investors can sign up and have the opportunity to buy stock at pre-IPO pricing, once shares are publicly for sale. This also benefits the companies, which receive the funds directly.
What’s not clear is how it benefits the not-for-profit IPOVillage or the bank behind it, First Line Capital LLC. When I asked First Line why it was starting IPOVillage, I only got answers about democracy and equality, not First Line’s bottom line.
Right now, the companies on the platform are members of First Line Capital’s portfolio. First Line Capital LLC is a boutique investment banking firm that has worked for over 20 years with small private companies that want to go public. However, the popularity of crowd funding has caused people and companies to become more open to alternative forms of investing and fundraising. The founders at First Line saw an opportunity.
Once a company under its wing gets the go-ahead to go public, any member of IPOVillage can choose to buy shares. After signing up on the site, investors secure a place in a virtual line. When a company officially goes public, IPOVillage will guide investors to that company’s site where they can directly buy stock at the unmarked up amount. Investors will have access to recording financials and relevant information before they make their decisions.
The first investment opportunity should be available in late October, pending SEC approval. Teaser information about the company is available on the IPOVillage site, as well as the sign-up prompt.
Now, Mom, Pop, Everyday Joe, and the folks on Main Street can theoretically have the same access to the exclusive access as those people eating caviar at the top of the ivory tower.
Everyday Joe may appreciate fair pricing, but I am pretty sure he prefers steak to fish eggs.