The Open IPO
For decades, Wall Street’s ritual for bringing stocks to market was suspiciously cozy. Investment bankers priced an initial public offering at a big discount to its true value, then invited their cronies and biggest customers to buy in. These lucky few reaped surefire profits. The IPO client? It received less cash than it had a right to expect–and paid a 7% fee for the privilege.
This outmoded system will collapse soon, mostly because of Bill Hambrecht. He’s the chief priest of the “open IPO,” which lets anyone bid for shares in auctions over the Internet. “If friends and family want in, they have to bid,” he says. And the banker’s commission is cut by half or more.
It’s not the first time Hambrecht has shaken up the finance world. In 1968, when he cofounded Hambrecht & Quist in San Francisco, the big-money game was ruled by New York. Hambrecht’s upstart got the inside edge on the PC and biotech revolutions and handled the IPOs of Apple and Genentech.
Hambrecht sold H&Q to JP Morgan Chase, then founded WR Hambrecht + Co. in 1998. His open IPO idea was embraced in 2004 by Google, and last year by Morningstar, the mutual-fund-ratings company (whose CEO, Joe Mansueto, owns Fast Company). As other entrepreneurs join in, more IPO funding will go straight to the folks who deserve it. And “friends and family” will be a little poorer.