Pre-IPO Placement
Categories: IPO
The banks wanted a hitter's name on the offering sheets as an investor. They wanted to use whoever's hot hand was there to market the IPO. Bob SoAndSo had made big bets on internet stocks that worked out famously well. He was quoted in The Wall Street Journal and Barrons. He was a known Thing. So SilverSlacks approached him about buying 3% of Whatever.com two months before the planned IPO, at a discount to the target price the bank was thinking about, in offering the shares to the public.
Bob's view was colored by a few lenses. He actually liked the company's prospects long-term. So he wanted to own a meaningful stake in it. If he only received a normal allocation in a hot IPO, he'd own like 0.2% of the company, and then would have to buy it at steeply up prices in the aftermarket, when the stock was freely trading. So the idea of being able to get in early in volume had appeal.
But Bob also know that there'd be a Big Boy Letter attached, meaning that if things went awry and SilverSlacks couldn't get the company public, then oh well, too bad, so sad. He'd hold illiquid shares of a private company with no clear timeline on when to turn that dough into cash.
Bob wanted a discount to the price and volume, so he asked for a 15% discount in price and 5% of the shares outstanding. Poker was played. And a deal settled upon.
This is the rationale behind a pre-IPO placement: to get the shares already in the hands of educated people who love the story...and reduce the risk of an offering simply not happening. Welcome to Wall Street 101.
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Finance: What is an IPO?25 Views
And finance allah shmoop What is an i p o
Well this is a hippo and it has nothing to
do with an ipo Auras Normal humans pronounce it if
both well actually most people just spell it out I
po It stands for initial public offering In the three
words tell the story and i pl refers to a
company who's raising money by selling shares of itself to
the public for the first time a maiden voyage in
public funding if you will Whatever dot com has forty
million shares outstanding after three private rounds with venture capitalists
and private investors it wants to raise money to go
big internationally And for the first time it will offer
shares to joe and jill public And that means that
all of it shares will be tradable publicly on the
open market like on nasdaq or the new york stock
exchange That is the insiders early investors founders et cetera
will be able to just call their broker at schwab
or fidelity or wherever and sell their shares get liquid
and buy themselves a maserati because it's not what everyone
does after a nice meal So whatever dot com sells
ten million shares a twelve bucks each to raise one
hundred twenty million dollars which they can spend to build
out offices all over the world So yeah that's an
ai po and that's Why a company generally wants to
make shares available to the public because once you've made
an initial public offering and you make money off the
sales of your stock you khun by as many hippos
as you like and just remember to feed them three
times a day they get Cranky if they go too 00:01:35.158 --> [endTime] long in between No