Fort Lauderdale, FL -- (SBWIRE) -- 09/24/2012 -- The recent Facebook initial public offering (IPO) saw the company generate about $104 billion, but that doesn't tell the behind-the-scenes story.
Straight off the top, Facebook paid out $176,000,000 to the investment banks which handled what is now being considered one of the most botched IPOs in history. Morgan Stanley led the investment bankers and has pocketed the biggest share of the $176m.
That's 1.1 percent of the total value of the stock as it went public. It does not reflect the now much-lower value of the stock. A trio of reporters for Bloomberg's online edition said the 1.1 percent is less than the investment banks usually charge. Bloomberg reported 3.6 percent is the usual take the investment banks get for handling an IPO. Facebook negotiated a 2/3s off deal because of the size of the IPO and the hype surrounding it.
At the regular 3.6 percent, Facebook would have paid out nearly $400 million. That is a serious amount of money no matter how big a company is. While that money may not as mean much to a company the size of Facebook, 3.6 percent can represent the difference between success and failure for small companies going public.
Fees can even be higher for smaller companies which are not expected to generate such massive income. More fees to the investment banks means less money goes back into the IPO company which is looking for capital.
"That's just not right," said Howard Orloff, the "Mayor" of IPO Village. IPO Village is a company that brings IPO offerings direct to the public without going to through middlemen like investment banks. IPO Village does not collect or charge underwriter fees, which means an IPO company gets to keep far more of the money generated by the stock sale.
"Small companies go public because they are looking for a capital boost to invest back in the company. The company owners have a vision for the future and need backers to make that happen. They need all the money they can get from their IPO," Mr. Orloff said. "At IPO Village, we believe the company should have a much more direct hand in how its IPO goes through and the company should keep as much of the IPO income as possible."
A MARKET DRIVEN DEAL
An investment bank-driven IPO first sells stock to a pre-selected group of investors, usually other banks and fund managers. They may even get to buy the stock at a discount. These companies then sell the stock to the public at a profit. By the time the public gets involved, the stock has traded hand several times going up in price each time.
Add to this the IPO price is artificial. Using a complex series of formulas, the investment bank determines the price of the stock. By the time the open markets gets to have a say, the price could be just about anything. In the case of Facebook, the stock was well over-priced according to the public.
Unlike the traditional IPO as run through an investment bank, IPO Village brings the stock direct to the public first.
"We let the public determine the value of the stock. If the public thinks the stock is worth $10 a share, the IPO is $10 a share. Since the stock will eventually wind up in the hands of the general public, those should be the investors who determine the value of the company," Mr. Orloff said. This open-market capitalism-driven IPO lets the company owners know exactly what their business is worth, he added. Going back to the Facebook IPO, the it appears the overpriced stock is a direct result of Morgan Stanley either not understanding market forces or the bank's operators simply ignored market forces in pursuit of more profit for themselves at the expense of public investors.
Given Morgan Stanley's profit margins and decades of success in the financial markets, it's hard to believe the bankers did not fully understand the Facebook business model.
"When a company takes its stock direct to the public, they cut out a middleman who is only interested in himself. The company can present its case direct to the public and get a fair deal for its stock. The company has to be considered on its own merits," Mr. Orloff said. "Investors can make their own decision based on company information that has not been manipulated by investment banks that are guaranteed a profit no matter what happens."
For more information on Equity Crowdfunding visit Crowdfunding Website Reviews or go directly to IPO Village.
About IPO Village
IPO Village offers IPO investment opportunities to every retail investor. While other crowdfunding type sites focus on private offerings, IPO Village's hosted public offerings provide its member investors with liquidity and a foreseeable exit. The Company employs a "first-come-first-served" policy with all parties equally welcome to invest. Since IPOs are typically oversold, IPO Village guarantees a place in line and encourages retail investors to sign up now at http://www.ipovillage.com