It’s still true that the world of bookbuilds, share placements and equity capital raisings remains largely the privilege of an elite few of brokers and investment bankers helping themselves and their high net worth or professional clients.
This is a self-serving world of old boys’ networks, favours, long lunches, nights out, sports hospitality and quid pro quo relationships often labeled as soft commissions to provide credibility in the eyes of the corporate regulators.
Indeed many individual investors will have looked on with envy at this status quo after an IPO hits the ASX boards to soar above its offer price and create stag profits for the privileged few offered access.
Share placements are also often exclusively offered to institutions at a discount to an exchange-traded price, which provides further advantages to institutions over retail shareholders who are left diluted as a result of these cosy arrangements.
One company aiming to level the playing field and champion the rights of individual investors to gain access to capital raisings on an equitable basis is Sydney-based tech startup OnMarket BookBuilds.
This week it had Prime Minister Malcolm Turnbull in attendance to launch its mobile app and technology platform for individual investors to bid on IPOs or placements offered by companies seeking to go public or raise capital.
OnMarket BookBuilds wants individual investors to join its campaign to democratise the world of capital raisings by registering their interest online and using its services.
Currently the fintech disruptor has several small to micro-cap companies available for investment at the IPO stage, including Bitcoin Group, Mainstream BPO and Traditional Therapy Clinics.
It has also offered investors the opportunity to invest in a share placement by Liquefied Natural Gas Ltd (ASX: LNG). Interest in this stock has been high due to the potential of its innovative technology to support large-scale liquefied natural gas projects in international energy markets.
The challenge for OnMarket BookBuilds and its commendable ambitions is to gain access to the best quality and most popular IPOs and placements for retail investors using its services.
However, this will not be easy as the privileged few are unsurprisingly reluctant to give up their control over a part of the equity capital markets that offer juicy soft commissions and huge fees on a regular basis.
A good example of a recent listing many individual investors would have liked a slice of is Veda Group Ltd (ASX: VED).
The stock was offered to institutional investors at $1.25 per share and closed its first full day of public trading in December 2013 at $1.92. A handy 45% profit in just over 24 hours.
This week Veda’s board recommended investors accept a takeover offer for the group valuing shares at $2.825 each, which represents a profit of around 126% for the lucky few that held the stock since the initial offer.
Other IPOs that have performed strongly in recent times include baby formula business Bellamy’s and online jobs market place Freelancer Ltd (ASX: FLN).
Investors interested in using OnMarket’s services in an attempt to find the next Bellamy’s or Veda Group simply need to sign-up online or download its mobile app before assessing what available investment opportunities it offers.
However, it’s worth remembering that risks apply when it comes to buying into IPOs.
These include a lack of information, the insiders’ advantages in selling a business they know better than anyone and the possibility that a company is overvalued or not all it’s cracked up to be.
It’s also generally true that the best-quality IPOs will see the highest demand and are generally therefore the hardest to access.
Investors must ask themselves the hard questions therefore before deciding to take the plunge on any IPO offered.
Hopefully OnMarket will succeed in its mission to bring some high-quality IPOs to individual investors and in turn bring some much needed competition to what remains the most outdated part of the financial services industry.
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Motley Fool contributor Tom Richardson owns shares of Bellamy's Australia. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Bellamy's Australia.
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