NetSuite went public Thursday in a Dutch auction, meaning its shares were priced through an auction of would-be buyers, not by a handful of investment bankers, as is the process in a traditional IPOs. (NYSE: N)
Bankers tend to under price IPOs by a few bucks to guarantee their clients a quick pop in value on the day the shares debut. Trouble is, the “clients” best-served by old-school IPOs are the institutional investors and wealthy brokerage customers with friends on the bank’s syndicate desk — NOT the hardworking founders of the company, who are made to sell their equity at a discount to give others that instant upside.
Using open bidding, Dutch auctions aim to price equity “fairly.” The idea, first notably used by Google, was actually hatched by veteran Silicon Valley banker, William Hambrecht, of WR Hambrecht & Co. (We’ll interview Mr. Hambrecht on Found|WATCH in January, so stay tuned for more from this thought leader.)
Dutch auctions haven’t gained much momentum yet, but given NetSuite’s performance, they might finally catch on.
Priced at $26, shares soared 77% in their first two days, closing Friday near $39. But this, then, begs our…
Question of the Day:
Despite the Dutch auction, could the post IPO run-up mean NetSuite founder, Evan Goldberg, left money on the table anyway?