IPO discount

used to be 15

15-30% is the range I've been given by a boutique and a BB person... I wonder if that holds for the IPOs this year though.

what is an IPO discount?

Normally in an IPO the shares are issued at a discount to what is considered their intrinsic value and that’s why investors keenly await IPOs and make money on most of them.

Typically between 10 - 20%. Right now its closer to 20% because investors are requiring a greater discount given underlying macroeconomic fundamentals.

20% is pretty average.

Post-Money @ Trading = $7,250

Post-Money @ Pricing = $7,250 / (1 + 10%) or $6,591

New Shareholders Ownership = $2,500 / $6,591 or 38%

if you want to think of it as shares, remember that issuers have to pay all fees, including IPO expenses and IPO discount.

So the $5 that you started with is no longer $5… it’s way less net of the the fees.

so calculate the fees first… IPO discount = $7250/1.1 - 7250 = -$659.1

then add IPO fees of $250, so total fees = $909.1

subtract the $909.1 from $5000… this is now your new pre-money equity value (fees are value destructive), so that’s $4,090.1

if you have 1,000 existing shares, then one share is worth $4.09 (from $5.00!)

New investors will want to come at the $4.09 price, so $2500 / $4.09 = 611.1 new shares are created.

total share count is now 1,611.1

new investors get 611.1 / 1,611.1 = 38% ownership or dilution