Flotation Cost

See: IPO. See: Underwriting fees. See: Underwriter.

Floating securities means "taking them public." And that carries a cost. Banks get something like 5% of the amount taken public, plus they get to do a bunch of trading work for the company, making a market in their stock for a while after the IPO.

The banks also usually manage (at high fees) the money of the founders and insiders who will gradually sell and diversify their holdings. And the banks also get to pitch for merger and acquisition business.

All of these numbers should go into the cost of being public. But they don't. Most investors just think about the actual cost of taking the company public and that's it. Big numbers, regardless.