Word: ipos
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...even richer. And this means not the odd $5,000 that earns a cool 18% a year on the eternal bull market (though we're not complaining, either, Mr. Greenspan) but the odd $5 million that returns 18% in four hours in the latest initial public offering (IPO)--as long as you're loaded enough to get offered such a deal in the first place...
This makes Andy Klein angry--or at least aware of a market niche. His company, Wit Capital, which launched last week, is an online broker that lets small investors not only trade stocks and mutual funds at cut-rate prices but also buy into the high-end IPO and venture-capital deals that were once the sole province of Wall Street's biggest kahunas. Until now, the Little Guy could only watch and drool as well-connected initial subscribers bought millions of IPO shares at insider offering prices, then "flipped" them to the clamoring public for instant fortunes: Netscape...
...idea: pool investors' money into bids that win a 5%-to-10% share of some of these deals. The site witcapital.com already has the specs on Wit's first IPO, an Israeli networking-software firm called Radcom Ltd. Now, whether Radcom will make you a quick killing or make you the quick killing is unknown. The big news is that you and I can read Radcom's prospectus and purchase its stock as early as the chairman of Goldman Sachs...
With the demand for equity still strong, IPO deals could swell this river of money with new revenue streams. Today's IPOs, Klein argues, constitute extortion visited by ruthless financiers upon under-funded entrepreneurs. The problem, from his guerrilla perspective, is that the lead underwriter who puts together an investment syndicate to take a company public offers it $12 a share, then prices the stock to the public at $15. Theoretically, some of that $3 a share could be the company's. So the stock hits NASDAQ via the traditional underwriting route at $15, then races...
Still, McCaffery believes, small investors will have their day. "If you create more demand," he says, "you should have an impact on price." If 10,000 Little Guys keep collectively offering $14 for IPOs whose syndicates are offering $12, wouldn't IPO candidates start urging their underwriter to give small investors a place at the table? And might not these populist wrinkles--Wit plans to sell similar venture-capital shares in pre-IPO start-ups--affect numerous deals down the line, shifting profits from bankers to entrepreneurs and the masses, perhaps even changing the way whole industries get financed? Might...