A Wikipedia/Crowd Voting for IPO Valuations

Hey guys I had an idea of a website that works similar to the way Wikipedia does but entirely focused on IPO valuations.

So many firms have to pay hefty fees in order to bring their IPO into the market. Part of these fees includes the models and high valuation incentive.

But suppose you had a Wikipedia page dedicated to company XYZ that wanted to go public. In the interest of proper valuations it makes the internal managerial accounting information available to the public.

Then subject matter experts in valuation and everyone in between tweaks 2-3 valuation models on this Wikipedia page like the way other information is edited.

You can even have a spam proof "prove you are not a robot" voting system that displays what the community thinks is the best model and price for the IPO given the information available.

Just like the encyclopedia Britannia was made obsolete by the Internet, perhaps at least valuation can be democratized as well.

It would be fun to see how Goldmans Valuation of an IPO does on its first day vs what the rest of the community thought was the right valuation.

The incentive for an investment bank is to try and get the highest possible price for an IPO to convince their suckers to pay for it. But many times this results in IPO crashes on the first day but lots of fees generated.

Maybe company employees and IPO investors and management would like a more stable valuation not influenced by the fee maximizing incentive of IB's

 
Best Response

Yeah I definitely thought about that. But to counter that point I'd say then what incentive does a Wikipedia editor have to put factual information and edit meticulously the information he's inputting if he has nothing to gain or lose.

I would think that one could create a popular profile by being right X% of the time and generate a cult following there by incentivizing people to research their input properly.

It would also open up the field of expertise to PH.D. And masters students of finance to make contributions vs your overly paid analyst.

Quite honestly an analyst is just a young graduate and not necessarily the most intelligent having no quant based understanding using simple models in excel, not the best people to pay 100k+ to do things someone making 40k couldn't do.

This whole "breaking" into IB is a disservice as it makes those who are connected and liked and managed to secure internships based on "like ability" or what not to get positions that really should be going to people who are more mathematically/finance inclined.

A Harvard BA graduate does not confer superior knowledge that a PH.D. from say a middle level school isn't getting. With the democratization of knowledge with the Internet, Harvard or target schools do not have a monopoly of knowledge that they once had in earlier times.

If I was a startup I would want older more quant based people to be working on my deal.

This could be a step in that direction of removing the monopoly that IB banks have from their size and access to capital allowing large fees.

With crowd funding and open source valuations you could technically get rid of Investment banks

 

Double post, but I just read your reply......have some more to say to you lol

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It would also open up the field of expertise to PH.D. And masters students of finance to make contributions vs your overly paid analyst.

Quite honestly an analyst is just a young graduate and not necessarily the most intelligent having no quant based understanding using simple models in excel, not the best people to pay 100k+ to do things someone making 40k couldn't do.

Have you ever met a PhD in finance? Sure they're smart people, but the role of a banker is to sell the company's shares. Whatever theoretical bulls*** a PhD can come up with is not going to make one bit of difference to the fund managers that will be buying the majority of shares when they become available. Another note, PhDs in finance are not necessarily the brightest minds in finance, by any means. Taking the time to get a PhD in finance poses a huge opportunity cost, one that most financially-adept people understand and do not take.. Obviously PhDs have very specialized knowledge in a certain set of financial topics, but most of those topics don't translate to the real world in this sense. If top jobs in finance paid like teaching, I think you could consider PhDs to be some of the smartest in the field. Right now, though, there isn't an accurate sample.
undefined:

This whole "breaking" into IB is a disservice as it makes those who are connected and liked and managed to secure internships based on "like ability" or what not to get positions that really should be going to people who are more mathematically/finance inclined.

A Harvard BA graduate does not confer superior knowledge that a PH.D. from say a middle level school isn't getting. With the democratization of knowledge with the Internet, Harvard or target schools do not have a monopoly of knowledge that they once had in earlier times.

No one is saying that a Harvard Art History Major is more financially inclined than someone who has their PhD in finance. Finance is not just a game of who can derive Black-Scholes the fastest. Another post (I think it was front page) today said something like this as well but, finance outside of academia is very much a people-focused field, the numbers just add color to the story. A Harvard grad is hired because of this reason, not because of his/her/its financial prowess.
undefined:

If I was a startup I would want older more quant based people to be working on my deal.

This could be a step in that direction of removing the monopoly that IB banks have from their size and access to capital allowing large fees.

With crowd funding and open source valuations you could technically get rid of Investment banks

You need to understand the mechanics of an IPO before you make Wikipedia for IPOs. IPOs are given a value range based on comps - and this is purely for management. If, as a founder, my choices are A. Banker who is out talking to decision makers every day giving me an indication of $XXXbn and B. PhD who stepped down from his ivory tower to tell me that through monte carlo analysis his martingale implies my company is worth $XXXtn, I'm going with the Banker 1000/1000 times.

 

That is not how it works. The final IPO price is not determined by what bankers / analysts / anonymous wikipedia contributors think it should be. It is determined by supply and demand via book building, the valuation models are in essence just marketing materials used to justify a pricing range. What I meant is that unless your contributors are bidding on the stock with real money, their opinion of what the company is worth is meaningless.

 

I doubt you'll find a ton of bright financial minds that feel as strongly enough about cutting out the middle man in equity capital markets as Wikipedia contributors feel towards informing the world to create a true online community . The idea you threw out about gaining a following based on performance has worked for a variety of other paper money/investment idea sites, but you're so narrow in focus, I don't know that it will catch on. Maybe if the IPO market was hot, but there have only been a handful of high profile IPOs this year. Good concept I guess, maybe try to apply it to some other intermediary function.

 

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