Underwriting Fees

The cost ot the company to place an offering of securities.

Whatever.com wants to sell 10 million new shares in addition to the 40 million shares that they have now. Those 10 million would be sold to the public for hopefully $20 a share. The underwriter will buy them from the company for $19 a share and make a $1 a share spread to pay their underwriting fees.

In addition, there are often charges for lawyers and filing fees and the like. The underwriter will make a market in the stock, cover it via their sell side analyst reports. And the underwriter usually has their own series of lucrative funds (like hedge and private equity funds) where they then place the shares of the newly very wealthy founders and insiders. They then make vastly more in fees than they did on the IPO itself.

See: Hedge Funds. See: Carry.