IPOs Keep Going Up

This wouldn’t actually work, I don’t think, but here’s a fun way to do an initial public offering. You write a prospectus describing your business and then you do a two-track IPO process. On one track, you hire Morgan Stanley or Goldman Sachs Group Inc. or whoever, and they go out and market your IPO to big institutional investors, and you do a roadshow and meet with those investors, and your banks build a book of demand and come to you with a market-clearing price for a billion-dollar IPO. On the other track, you hire Robinhood Markets, and Robinhood features your stock prominently on its retail trading app for a week, and its customers can bid on the stock and see how many other bids there are and for what price, or maybe even shadow-trade it in a sort of when-issued market, and then Robinhood comes to you with a market-clearing price for some amount of stock, maybe $200 million.

And then Morgan Stanley is like “you can do a billion-dollar IPO at $50 per share” and Robinhood is like “you can do a $200 million IPO at $100 per share” and you get to pick. (Note that a billion-dollar IPO at $50 per share is 20 million shares; a $200 million IPO at $100 is 2 million shares, 20% as much money for 10% as many shares.) You can raise a lot of money to fund your operations for a long time, from big institutions that will be long-term shareholders, at a price that is palatable to those big institutions. Or you can raise a smaller amount of money at a super high stock price, from smaller investors, with less dilution. If you really need the money, you take the money. If you’re fine with less money and you want to maximize price, you take Robinhood.