I recently stumbled upon an article that caught my interest: "Mom/Pops finally get crack at new IPOs" (to read this article click here). The article discusses IPO Village, a crowdfunding business that specializes in bringing the IPO (Initial Public Offering) to "mom/pop investors"--in other words, individual investors.
IPO Village maintains that by making the offerings available to the mom/pop investors, the offering company will make more off of the IPO and as a result the investors will have greater opportunities for profit. Why the increase in opportunity? Well, in theory, since the company is making more of the IPOs (no middlemen to account for), the investors would pay the "true value" of the company (read more), allowing for a greater chance of appreciation. IPO Village also notes that investors would benefit from company visibility/due diligence (on IPO Village's part), liquidity, and an exit strategy (the public market).
In our June issue, we discussed the pending NASDAQ BX Venture Market and how this would increase liquidity in microcaps by introducing new investment opportunities to the market. IPO Village's effects would theoretically be the same. By directly addressing investment sources, smaller companies would be able to come to the public market without the added costs of investment bankers, underwriters, brokers, lawyers, etc. Ideally, these companies would greatly benefit from going public by raising funds without losing an arm and a leg to do so.
Recently, IPO trends point away from the small IPOs. Since 1996, the number of IPOs is down to 110 from 886. The average offering size, on the other hand, has soared from $30 million to $147.8 million in the same period. Statistics from WilmerHale's 2012 IPO Report. Fewer and fewer small companies are coming to the public markets.
Small companies play an essential role in the economy, yet more and more they are overlooked. Many of them no longer bother going public. The reasons for not doing so are many, but IPO Village attempts to address a major concern--cost. Ideas like theirs can regenerate the small IPO, increasing the opportunity for growth in small businesses and profit for individual investors.
To visit IPO Village's website and read more about the company, click here.
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