Anyone who's watched Net IPO after Net IPO shoot the moon in recent months has probably at some point asked, how can I get in on that? The answer: You can't.
Unless you're an investment banker, or an institutional investor with a banker friend, you have about as much chance of bagging a pre-IPO share of a company as you have of winning the lottery.
Bill Hambrecht, an old banker himself, hopes to change that. The co-founder and ex-CEO of Hambrecht & Quist on Monday launched a new Web-based service called OpenIPO. Hambrecht's new firm will give all investors equal access to a company's pre-IPO shares.
"We're opening up the process, putting large institutional investors, small investors, and individual investors on equal footing," said Ian Zwicker, president of W.R. Hambrecht & Co., which will run OpenIPO.
The idea is simple: Pre-IPO shares of a company that W. R. Hambrecht & Co. underwrites will be auctioned off to the highest bidders at OpenIPO's Web site.
It's actually a multi-tiered process. First, like any bank, W.R. Hambrecht has to set an initial price range for the shares. Then, OpenIPO takes bids on the shares and creates a fair "market-clearing price" based on a mathematical model developed by economist and Nobel laureate William Vickrey. Investors who bid above the set price will receive options to buy the number of shares for which they bid. If everyone bids at the top of the range, W.R. Hambrecht will raise the range.
Theoretically, the auction will benefit both the individual investor, who for the first time has access to the shares, and the company. The company benefits because the sale of its pre-IPO shares will be determined by market value, not by investment bankers trying to give a cut-rate deal to big clients. Without a discount on the offering price, companies will raise more money for themselves in an IPO, and less for the banker's clients.
