Tuesday, May 04, 2004

Netscape 2.0

One of the most interesting things about the upcoming Google IPO is the fact that it uses a Dutch auction to allocate shares instead of the usual investment bank brokers. Somehow, during the Internet bubble, people came to beleive that an IPO "pop" (a dramatic increase in share price in the first few days after an IPO) was a good thing. In fact, a "pop" was simply a massive transfer of wealth from the company going public to the well connected investors who had the right connections with the kick-back hungry banks.

Google is not the first IPO to be structured like this, but it is the most high profile, and if this ushers in a more rational age of technology investing, all the better. Some investors have critisized this structure saying that the company's value will be set too high, but this simply means that they should pass on the opportunity to buy it, the same way one would pass on any over-priced trinket. Others complain that the company does not have a large enough float (i.e. insiders will retain too much of the company's stock), but they fail to realize that this fact, if detrimental, should be fully priced into the IPO price. Here is a link of articles on the Google IPO.

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