Underwriting Risk

It exists. In many ways, actually. The first and most obvious way is that, for a brief moment in time, the underwriters actually own all the shares being sold to the public. That is, they buy them at, say, $19 a share, and then turn around 6 minutes later and sell at $20. So if a bomb goes off in those 6 minutes and the Street panics, the bank is left holding a big bag.

But there's a bigger risk as well. If an underwriter brings a company public, using its reputation and relationships and trust. and that company ends up being a total dog of an investment...really bad things subsequently happen in many ways. The underwriter gets blamed by the company for not marketing its oh so awesome flying cars very well (so what are a few crashes when you avoid traffic, really?) Then other companies in analogous tech spaces, from the battery to the blade makers in this biz, all wanting to go public, actively avoid using this underwriter. The investors who paid $20 a share (now holding the stock at $6) aren't going to be fast customers or IPO buyers again either.

Lots at risk; lots to love.

See: Greenshoe.