Finally, Revealing What's Behind Closed Doors
Written: Jul 11 '00 (Updated Jul 11 '00)
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Pros: opens up the door to smaller investors to participate in IPOs, easy to use, fair share distribution system
Cons: you are required to open a WR Hambrecht brokerage account or have one with a participating brokerage
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| IntegraRacer's Full Review: Open IPO |
If either OpenIPO or WR Hambrecht & Co. sounds familiar, there is probably a good reason. The founder of WR Hambrecht is Bill Hambrecht, of Hambrecht & Quist (H&Q) fame. H&Q has had a long tradition in the investment banking industry, and his new venture has loads of investors and capital flocking his way. I personally have seen WR Hambrecht’s analyst reports on the Internet, through Onesource (http://www.onesource.com) as well as Yahoo Finance (http://finance.yahoo.com). WR Hambrecht is a well-known and respected investment bank that specializes in the technology sector, Internet, and other emerging growth sectors. I’ve heard about Open IPO before somewhere, but never quite knew what it was until now. Anyway, one of the funny things is that OpenIPO’s website (http://www.openipo.com/) is the same as the WR Hambrecht website (http://www.wrhambrecht.com/; they both point to the same place). Okay, so maybe it’s not so funny, but I found that to be worth noting.
This is a Personal Finance Write-off with frazzledspice reviewing RedHerring.com, mrisch reviewing IPOMaven, and dbhoutx reviewing E*Offering, several excellent and talented writers here at Epinions.com, as we actively review IPO (initial public offering) sites. This is also the first of three reviews that I will be posting for this write-off.
IPOs Explained
Initial Public Offerings (IPOs, as better known) are defined by Yahoo Finance as “a company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. IPO's by investment companies (closed end funds) usually contain underwriting fees, which represent a load to buyers.”
And that’s exactly what it is. You see, the main concept you must grasp about the IPO in general is that they are risky!!! There have been studies that have shown how IPOs have fared in the past. I don’t remember the facts offhand, so I will not spread misinformation. However, studies have definitely shown that IPOs undergo a significant amount of volatility between the offering day and the next three days afterward. And for every IPO stock that shoots up in excess of 100% in its first day, there are countless others that have plummeted. The ratio is not one that excites me, personally. But it is the same concept of diversifying your portfolio; you hope that the one winner will more than make up for the several losers in your portfolio.
Is this something I can use?
The answer is…it all depends. If you split the site into two parts (OpenIPO, and the rest of the site), there will be no requirements for you to peruse their research or use their tools if you are looking at the “rest of the site”. Oh, one exception is WR Hambrecht’s Private Investments. The only people allowed to participate in this are qualified investors (people with annual incomes over $200,000, assets over $1 million, etc.) If you are curious about the requirements specifically, they are available here:
http://www.openipo.com/offerings/individual/private_invest/accredited.html
But for OpenIPO, there are only a few requirements to participate:
1. You need to have a WR Hambrecht & Co. brokerage account, or have an account with a participating brokerage in the OpenIPO network.
2. You cannot purchase shares of the IPO stock on margin.
3. The minimum share purchase size is 100, and there is no maximum purchase size.
Unlocking the secrets of OpenIPO
OpenIPO is a relatively new concept, especially for investors like myself, who have constantly heard of the IPOs that were big (at least to me) in the past, like Yahoo! (YHOO), Red Hat (RHAT) or Exodus Communications (EXDS). To me, IPOs were something that was “untouchable” to the small investor. Why? Because small investors would try to participate in these IPOs, only to find that they were not able to get into the IPO at the offering price. Instead, two possible scenarios: a) the investor would not be able to obtain any shares in the IPO; and b) the investor would not catch it at the open, but would only get in after it had made most of its gain, slightly off the high of the day; in this scenario, the investor would instead fall victim to the volatility and see their shares fall in price.
So how does OpenIPO help the small investor?
OpenIPO puts the small investor on the same level as the large institutional investor, or the investor with plenty of assets. If you read the earlier requirements to participate in their Private Offerings, you would see that only a small percentage of people (relative to the whole) would fit this category. And now, with the aid of technology (especially the Internet), smaller investors have a way to leverage their meager savings.
So how does it work? Well, quite simply, there are NO requirements on who can participate. If you are able to purchase 100 shares of stock, you’re in. It doesn’t matter who you are, where you’re from, what you do. OpenIPO goes across all lines and allows everyone to participate. So you place a bid on an IPO stock, and you can change or withdraw your bid at any time until the auction closes. If you are familiar with online brokerages, then OpenIPO should be a piece of cake.
I didn’t get all 100 shares!!!
Well, you may not get all the shares that you bid for. You see, during the auction, everyone on OpenIPO places his or her bids. They state the amount of shares they want to purchase, as well as the price they are willing to pay. The company that is issuing the initial public offering (not the company that is underwriting the IPO, but the company of the stock itself) will decide on the offering price, and then they will calculate all the different prices investors will purchase at, as well as the amount of shares they want.
Anyway, to make a long story short, the higher you place your bid at, the more likely you will be to get the shares you want. But with OpenIPO’s pro-rata allocation, you are for the most part guaranteed to get at least a percentage of the shares you requested. The only exception is if you bid at such a low price that they chose not to grant you any shares whatsoever.
Lastly, why would companies want to go with OpenIPO? Because there are much lower underwriting fees. Instead of the traditional $25 million or 7% underwriting fee, they only pay roughly 3% from Open IPO; this is due to the low costs (using the aid of technology), better pricing (market price is the barometer, not just another figure), etc. Especially now that the IPO market is tentative, due to the shaky market (in general), OpenIPO sets itself up to capture a lot of the deals, because of its low cost structure and its willingness to take on the smaller offerings.
Benefits of WRH+Co.
Well, seeing as how this is also the WR Hambrecht & Co. website, it is no surprise that there are extras. You get top of the line analysts’ reports (on company letterhead, too). It is in Adobe PDF format, and they have analysts’ recommendations in each of the emerging growth sectors. The research is excellent, and it is well organized as well. In addition, they release a comprehensive, and I do mean comprehensive weekly newsletter. This newsletter talks about all areas of the stock market, from IPOs to quarterly earnings reports. It is free, and you can get it on the website or by email.
How can you not like this site?
As if rooting for the underdog (the small investor) is not enough, OpenIPO is one of the pioneers in revolutionizing the way IPOs are handled. Everyone is on equal footing. It is that plain and simple. It’s easy to use, the shares are fairly distributed, and there are no real requirements to participate, other than opening an account within the WRH+Co network. In addition, there’s lots of great research to boot, from an excellent online investment bank. What’s there not to like? Only that you need to meet stringent requirements to qualify for their private offerings. So make the choice, sign up and participate. There should be no question about it.
My recommendation: Two thumbs way up.
Finance Write-Off Epinion 1 of 3
Review 1: OpenIPO.com
Review 2: E*Offering.com
Review 3: ipoPros.com
Recommended:
Yes
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IntegraRacer
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Member: Willis
Location: Los Angeles, CA
Reviews written: 32
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