Econintersect: (Original article posted 04 October 2012) Over $1 million in pledges has already been committed towards the first crowdfunded IPO (set to go live in the coming weeks) from investors intending to buy the shares in the IPO directly from the company. This process was enabled by IPOVillage.com acting as a portal, allowing interested investors to sign up for an opportunity to buy stock in the IPO on a first come, first serve basis. Moreover, this will be the first IPO to use crowdfunding since IPO Village does not even have to wait until the enactment of The Jobs Act (Jumpstart Our Business Startups Act, signed April 5, 2012) which created a new form of raising capital called crowdfunding) since the company is crowdfunding public offerings.
Crowd funding originally was envisioned as an investment pathway that would be open in addition to investing in an IPO. The idea was that the crowd funding would be in the realm of companies that would remain private, making the activity something like "venture capital investing" for the common man.
What is unexpected is that the crowd funding model is being used for an SEC qualified IPO for the issuance of stock. IPO Village will establish customer accounts with offering companies that will enable account holders to bid for IPO shares, with the priority order established by the order of funds deposited.
As mentioned previously, the first IPO Village enabled account has received $1 million in deposits from investors that want to be in line to bid for shares of the first ever crowd funded IPO. The deposits are held at the IPO issuing company and are submitted through the company's website, accessed through IPO Village acting as a portal. The name of the company going public is not revealed to the general public at this point because of SEC restrictions. Obviously the name of the company is revealed to individuals who apply to make a deposit.
The IPO will be for an established aesthetic medical device company. Here is what is said on the IPO Village website:
The company has developed patented solutions for non-invasive cosmetic weight-loss procedures. The company's technology is FDA-cleared and CE Medical Marked. It has been on the market for more than 6 years and is franchised in 13 countries with 130 installations and growing. Click here to learn more.
(IPO Village is unable to name the company as it is currently in an SEC "Quiet Period".)
Econintersect asked IPO Village Managing Director Howard Orloff to explain why crowd funding offers advantages over the traditional IPO process. Here is what he said in a telephone interview:
The crowd funding process has potential financial advantages for both investors and for a company going public. In a typical IPO process the average markup has been about 22% over the years 1990 - 2009. That is money that has gone to the IPO underwriters, lawyers, brokers and investment bankers' fees. The total that is spent by investors for an IPO can be diverted up to 30% by these. I estimate the total over the 20 years (1990 - 2009) that has been put up by investors but has not reached the issuing company totals $124 billion.
The IPO Village business model is much different than the traditional way that IPOs have operated. And the difference starts with the fact that IPO Village is a not-for-profit operation. It operates as a portal and information site. There is no underwriting, there are no brokers and there are no investment bankers' fees. The portal establishes a direct contact between the company going public and the registered members who wish to buy the IPO. Orloff said:
We offer a process for the individual investor to buy stock directly from the company at the IPO stage, in a process similar to the "buy direct" functions that many major corporations have offered for decades. The JOBS Act has opened the avenue for the same process to be exercised by companies and investors right from the initial IPO.
What is the significance of this? A good summary is given on the IPO Village Blog:
Think about what could happen if a company issued IPO stock direct to the public without any middlemen. In the first place, the company would get 100 percent of the money from investors. No commissions, no extra fees, no discounts. The company would get the money is needed.
Secondly, investors would pay the true value of the stock and not have to worry about add ons, fees and exorbitant commissions. Thirdly, the stranglehold the SEC and a handful of giant financial institutions have over the world of stocks and trading would be broken.
This would level the playing field in a true capitalistic form. There would be less government interference and far more “free market” rules governing the price of stocks.
The JOBS Act has not changed the the IPO process, momentum in crowd funding will allow the model to succeed following this new path.
Orloff told Econintersect that a primary function of IPO Village, in addition to being a portal, was to create a more democratic investing process, to provide a platform for investor education and offer a vehicle for investors to to carry out due diligence reviews.
Here is the full 03 October 2012 press release:
over $1 Million in equity Pledged on IPO Village
for FIRST ever Equity-Based Crowdfunded ipo
NEW YORK, NY – IPO Village, the first of its kind crowdfunding platform to host initial public offerings, announced today that they have received over $1 million in pledges for their first crowdfunded IPO set to go live in the coming weeks. IPO Village is an organization that uses crowdfunding to bring exclusive pre-IPO’s to the everyday retail investor, allowing “Main Street” investors to access stock that was once only reserved for the Wall Street elite.
“We are thrilled with the number of people signing up to lock in a chance to purchase shares at pre-IPO prices,” says Howard Orloff, the managing director of IPO Village. “Our first company is set to go public within the coming months and already $1 million dollars in pledges from approximately 500 retail investors have been received through IPOVillage.com. Retail investors are excited to secure their place in line for our first crowdfunded IPO.”
While investors are not committing themselves to purchase stock, they are securing their place in line. Once an investor signs up on their website they receive an email giving the name of the company and detailed information to begin their research, before making an investment decision. When the offering comes out of the quiet period, investors who sign up will receive an alert letting them know that the opportunity to purchase stock has opened. Investors will receive the option to purchase the pre-IPO stock based upon the day that they signed up on the site.
“First come first serve is really the only fair way to go about it,” says Simon Erblich, Founder of IPO Village. “Right now pre-IPO’s gog to the wealthiest investors and institutional investors first. The average “Joe” does not get pre-IPO stock that just doesn’t happen. By the time they see the stock, it has been marked up at least 22%. By using the crowd to fund IPOs we are bringing Initial Public Offerings back to the Public where they belong and were intended to be.”
There’s only a short period of time remaining before the first official offer goes live, but IPO Village is already more than half way towards reaching its goal, since over a million dollars has already been pledged. With such aggressive interest already in place, the Company strongly anticipates that their first offering will sell-out very quickly once investors are allowed to start investing as the line of investors surpasses the 1000+ mark.
IPO Village does not have to wait until the JOBS Act is fully implemented in 2013 as they are “crowdfunding” publically traded stock. Their launch will mix high-tech and traditional finance in a way that has not been seen before. To learn more about crowdfunding IPO investments, gain more insights on IPO Village, or secure your place in line, visit IPOVillage.com.
About IPO Village
IPO Village offers IPO investment opportunities to every retail investor. While other crowdfunding type sites focus on private offerings, IPO Village's hosted public offerings provide its member investors with liquidity and a foreseeable exit. The Company employs a "first-come-first-served" policy with all parties equally welcome to invest. Since IPOs are typically oversold, IPO Village guarantees a place in line and encourages retail investors to sign up now at www.ipovillage.com.
Contact: Kimberley Brown
Phone: 512.271.9489, Ext: 702
- Press Release received by e-mail.
- Econintersect telephone interview with Howard Orloff, 30 September 2012
- DueDiligence, Due Diligence, Due Diligence (IPO Village Blog, 02 October 2012)