lb notable >>9708723 NYSE makes new push with the SEC for IPO alternative
Why the SEC is taking some of the gravy of the IPO system?
It will change the game a bit, in terms of early financing and ability of companies to grow and build for years straight without making a profit, so i theorize that the financing structure will change alot for companies that ipo direct to the public.
1- IPOs are generally a public relations event and the banks managing the hype often are linked alot more than just receiving a small fee for bringing a company public. Prior to the listing these banks often are hand in hand with venture capital firms (and keep in mind ipo's are not start up, risky companies the rik is in the valuations they ipo to the public with) IF a company eventually goes public for lets say 40 a share, the insiders at venture cap firms and bank insider are sitting on stock with a basis of much less. The venture capital firms could have offered financing for about a dollar a share, maybe upward of 5 but not much more. The banks provide financing to venture capital firm to incresae their leverage in early financing and have the same deal structured to a degree. So the money is mad, these insiders who have a legal monopoly which Potus and SEC is breaking are in it for 1000% or eay 10x for a few years of investment. The companies have to play this game because all the banks and venture firms do it due to the current rules granting this monopoly. All paid for by the public incorporating risk of buying ipos at very high multiples.
A an example Goldman Sachs, others (Banks all in it together) underwriting the Vroom ipo:
Vroom was last valued at $1.5 billion when it received a $254 million funding in December last year.
So Banks in Dec are offering financing and acquiring/buying shares for the financing (structure varies each deal but stock, options, warrants, etc all come into play) privately prior to the ipo 6 months later: Also Dec 2019 is late in the game, the prior year VRM was prolly financed by venture capital based on a 500 million valuation.
So the hypothetical (very basic for illustrative purposes) scenario of returns based on public facts and IPO value;
1- Assume in Dec. 2018 VRM gear up to go public in a year and a half. A venture Cap firms gives a loan of 100 million and values the company at 500 million, in exchange it acquires 20% of company stock.
VRM goes public at a near 5 billion and the firm sells its 20% stake (sometimes on exchange, sometimes via the ipo itself) for 1 billion. Not bad a 1000% or 10x return, 1 billion for 100 million.
2- GS who is cozy with venture cap firm (prolly is the source of money for venture cap firm) offers additional financing a year later Dec 2019 and 6 months prior to ipo of 250 million, values company at 1.5 billion and negotiates for 16.5% of the stock for the loan.
3- The company now has given up 36.5% of its stock for 350 million.
4- GS, etal. brings it public and its 250 mil invest grosses 825 million in 6 months. Between GS and venture cap firm they loan a total of 350 million and gain 1.825 billion.
5- GS gives it clients a bit of a deal maybe 40 a share it trades at 47 on day 1, pushes the stock on the public.
6- Public trusts GS and the system and the company is valued at 5 billion even though it only has revenue of just over a billion a year and has never made a profit, but it may someday!
In Dec 2019 GS