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20VC: Why the IPO Market is not Closed | Why Revenue Multiples are BS and Founders Need to Change | Advice From Jack Ma, Jamie Dimon and Evan Spiegel | Lessons from Taking Snap & Alibaba Public with Imran Khan
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
Pricing in IPOs: Demand Dictates Value
In traditional IPOs, the price range is established based on comparisons and public feedback. A partnership with underwriters plays a crucial role in setting this preliminary range, which ideally reflects a 98% confidence level. During the roadshow, investor demand is assessed, influencing whether the price can be adjusted upwards or must be lowered—a downward adjustment indicates poor market reception. The price target is often determined by investor feedback, which can vary significantly, highlighting the need to balance high demand with realistic pricing. An IPO is more likely to succeed if demand is substantial, evidenced by a book that is significantly oversubscribed, particularly by reputable investors. Careful consideration of the price set is critical, as setting it too high can lead to lack of buyer interest and subsequent sell-offs from initial investors.
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