One of the biggest criticisms made of the IPO process is that investment banks turn around and flip hot new stocks for a big, quick profit, crowding out institutional investors with a longer attention span, and showing with no regard for a company’s long term prospects.
But Menlo, California-based InsideVenture, which is backed by major venture capital firms such as Venrock and Frazier Ventures, major institutional investors such as T Rowe Price, and even the New York Stock Exchange, thinks its new Hybrid Private-Public Offering (HPPOs) method of launching IPOs, introduced this week, is a way around that problem and a way to spur a recovery in the IPO market.
Here’s how an HPPO would work: small and mid-cap companies would still have to file standard IPO registrations with the U.S. Securities and Exchange Commission. But the company would then work with InsideVenture to allocate about half the shares to its existing shareholders and any of the 225 long-term fundamental investors that are InsideVenture members. Once it had lined up a roster made up of enough long term investors, the company would launch its IPO.
InsideVenture CEO Mona DeFrawi told Reuters in November that the disappearance of boutique investment banks after the dot com bust earlier this decade left the major investment banks focused mostly on larger-cap companies, leaving an opening for her firm’s services.
In March, InsideVenture introduced 50 private healthcare and tech companies to its member institutional investors at a conference, but a spokesman for InsideVenture said no companies have yet filed to do an HPPO-type IPO.