Take it from a guy who knows, the process is really flawed.
What should Robinhood (HOOD) -Get Report have done to avoid the IPO debacle?
I can't speak to what happened on Thursday, who was in charge, who argued for what.
I can only tell you what I argued for 22 years ago whenTheStreet.comwas coming public. First, as the founder, I was determined to award all the subscribers with stock to demonstrate my loyalty to them.
Second, I was insistent that the deal be priced much lower than the underwriters wanted. We had already made a ton of money for initial investors. Why not leave a lot on the table and let the new investors do well?
Third, I wanted enough stock placed with good hands that there would be no flippers and I wanted close coordination with the various brokers who tended to infiltrate the process and hijack the openings by batching market orders and opening the stocks way too high and then shorting them all the way down.
I lost on every single point.
The underwriters said we could not allocate to subscribers.
Second, the price of the deal would not be controlled to where we could have a small pop so everyone would win.
Third, the over-the-transom orders, those who placed market orders, were batched by an outfit called Knight Securities, not the underwriter, Goldman Sachs, and it opened at $62 -- it wasn't even clear what the opening price was it was so chaotic -- traded to $66, like how Robinhood traded to $39 and change, and then never traded higher.
Everyone who bought that day lost money.
Everyone who sold that day made money.
No subscribers got in, most bought at the opening, from what I can tell, and I alienated everyone except the big dogs.
It is amazing that here we are in 2021 and the process, while letting clients in, failed to price it so that Robinhood left money on the table. Believe me, it was possible to do so. But the underwriters and the management chose not to do so. We don't know which side screwed up, or both, but there was a successful blueprint; believe me, if I knew what it was in 1999, they knew what it is now.
I always regretted what happened. Most people blamed me as I was the face of the process. I was astounded by how horrendous it was and did not "take the long view" because the long view sucked.
Why do these things go wrong? I do blame the underwriter because they do this every day and the principals only do it once. They have to keep the management from betraying the shareholders because the shareholders think that it is management's fault. No underwriter is EVER going to say that they screwed up. That's not in the cards.
So, we sit back and we marvel about how badly the deal went even as it was well within the province of the underwriter and the principals to make it so Robinhood left more on the table.
Greed?
Stupidity?
How about poor execution and a lack of transparency that shows how badly it was handled.
Just like the offering ofTheStreet.com.
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