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William R. Hambrecht wants to democratize IPOs
The venerable banker has set out to create a stabler system that gives the little guy a chance.
The Internet has already revolutionized purchasing books, booking flights and buying and selling stocks. And if William Hambrecht has his way, the process of taking a company public will be next.
In a conventional initial public offering, the lead investment bank essentially buys the company's shares at a negotiated price and resells them to institutional investors like mutual fund managers at a set price. But that process doesn't gauge demand among individual investors. So it's not unusual for companies to sell their stock at $20 a pop one evening and then see those shares close at $40 in their market debut the next day. (See "The Great Internet IPO Scam," August 1999, page 82). Critics lambaste the traditional underwriting process as unfair and volatile, and they claim that it shuts out the individual investor.
Hambrecht is trying to change a system that for decades was very good to him. In 1968, he cofounded the investment bank Hambrecht & Quist with George Quist. H&Q became one of the best-known independent investment banks, specializing in high-technology and biotechnology stocks. Ironically, one of the firm's successes was helping lead the 1995 IPO of Netscape Communications (now owned by America Online), which became the prototype of the Internet IPO whose stock doubles in its first day of trading.
Eventually, Dan Case became chief executive at H&Q, and Hambrecht's role as chairman became what he calls "more ceremonial." So he left at the start of 1998 to pursue an idea about using the Internet for distributing IPO shares. And W.R. Hambrecht & Co., an online investment bank, opened for business in San Francisco on Feb. 1,1998, funded with $10 million of Hambrecht's own money.
Other online investment banks distribute shares of IPOs over the Internet, but they do so as part of the traditional model. W.R. Hambrecht & Co., however, uses a form of the "Dutch auction" model for IPOs that it calls 'OpenIPO." This allows institutions and individuals alike to bid on shares in the IPO by logging onto the Web site (www.openipo.com). Bidders list the number of shares they want to buy...