​How One Investment Bank is Making Sure Everyday Investors Can Take Part in the Hottest IPOs

Daniel Banas  |

The financial industry is currently undergoing a dramatic shift, especially for both startup companies and individuals looking to invest in the next big thing. Thanks to the passage of the JOBS Act in 2012, there are far more investing opportunities now, and a much more level playing field than ever before for individual investors. For investment bank WR Hambrecht + Co, these industry trends are aligning well with how the firm has positioned itself over the years, forging a new path for investors and startups to access the capital markets. Through products like OpenIPO® Auction and Reg A+ mini-IPO, WR Hambrecht + Co has been focused on opening up the investing world to as many people as possible at fair market prices long before the JOBS Act was even proposed.

Recently, Equities.com had the opportunity to speak with WR Hambrecht + Co Partner and Head of Equity Capital Markets, Whitney White, on the company’s history in the capital raising space, as well as the ways they’re capitalizing on a more robust investing environment.

White explains that while there are a number of funding portals in the Reg A+ space, WR Hambrecht + Co comes at it from a very different perspective. “Bill Hambrecht, the founder of our firm, has a long history as a Silicon Valley pioneer in both venture capital and investment banking,” says White. Initially, “Hambrecht co-founded a firm called Hambrecht & Quist in the late 60s. H&Q was one of the so-called four horsemen firms, referring to boutique investment banks in the Silicon Valley area.” These firms focused on financing startups that today we would call disruptive, emerging growth companies in high tech, healthcare, life sciences, and other fast-growing fields that tend to make major changes in the world.

“Among the IPO transactions that Bill handled at Hambrecht & Quist was Adobe (ADBE). Its initial public offering was for $6 million, which is a tiny IPO – even on an inflation-adjusted basis, that was a small deal. But that amount proved to be enough growth capital to fund the company – they never returned to the capital markets. Today of course, it’s a $50 billion company and a household name, but when it went public back in 1986, it was a somewhat obscure tech company.”

It was a similar situation for companies like Genentech (RHHBY) and Intel (INTC). “It may sound incredible, but Intel raised $6.8 million in its IPO, and the prospectus was about 20 pages. Today, a registration statement for a traditional offering is often hundreds of pages. Back then, a prospectus was a marketing document. Now, it's a legal document, full of disclosures, which are mostly just cut and pasted,” White lamented.

Letting Investors Determine the Price...and Leveling the Playing Field

Over the years, Bill had a number of experiences that led him to believe that the IPO process was broken - especially in the 1990s. “He would see the routine underpricing of IPOs for the benefit of the underwriter’s highest paying, commission-generating institutional clients. Basically, the clients that the firm traded with were rewarded with cheap stock in IPOs - at the expense of the issuing company,” White explained. “So, let’s say I have a company and I’m doing a public offering. If I’m offering my shares at $10 during an IPO, and the stock is trading at $100 the next day, it’s clear that I left $90 a share on the table. That’s money that would have gone to the company to fund its growth or into the pockets of any selling shareholders. Instead, the $90 per share turns into a handsome one- or two-day trading profit for the favorite institutional clients lucky enough to buy at $10 and sell at $100.”

Hambrecht began to wonder: “Why don’t we run an auction and let investors determine a clearing price?”

“The idea was that you give investors of all classes the ability to participate in an offering, and those who really want it will pay up for it,” White explains. “We dampen that irrational post-offering pop that you typically see. Investors who really want to own the securities tend to be the ones who understand the company, and they tend to be long-term holders, which is what you want.”

Sam Adams Taps its Fan Base...the Term “Affinity Investor” is Born

As an example of how to tap into everyday investors, White offers the example of Sam Adams brewer Boston Beer Company (SAM), which went public back in 1995. “Jim Koch, the founder of the Boston Beer Company, decided that he wanted to offer the IPO shares to his beer drinkers, and so they hung neck jackets, little neck hangers, on the beer bottles, with basic information, essentially saying ‘Hey, we're going public. If you're interested, call this number’.”

“Long story short, they got a ton of money from beer drinkers, who said to themselves, ‘Hey, I like this beer. I want to support the company, and I want to own shares in it.’”

The Boston Beer Company IPO was a terrific demonstration, White puts it, that “an issuer's affinity group can be a powerful source of demand in a public offering, and be a valuable component of a company’s shareholder base.”

The Auction Innovation Meets an Intransigent Finance Sector

Based in part on the lessons learned from the Boston Beer Company IPO, Bill Hambrecht was inspired to start WR Hambrecht + Co, with the express purpose of “leveling the playing field and enabling all classes of investors to participate in IPOs, to be a part of the pricing, through a transparent, technology-driven process.” Mind you, this was still back in 1998, just as the web was becoming mainstream, which White saw as the key difference that would allow them to succeed.

According to White, Hambrecht’s inspiration was: “What if we built a company that was based on technology, where we could do broad distribution and market deals to all eligible and suitable investors?” It’s an important distinction because, as White explains, “what most people don’t realize is, while almost everybody is eligible to buy shares in an initial public offering, very few people get access, because traditional underwriters focus on a narrow distribution, generally to their best institutional clients. So, for example, you and I don’t necessarily get access to the hottest IPOs, like Alibaba (BABA), even though you and I are suitable investors. You don’t have to be an accredited or professional investor, or even have any investing history to participate in an IPO.”

Hambrecht Advises Congress on How Reg A Can Grease the Wheels of IPOs

WR Hambrecht + Co’s connection to the JOBS Act started early...about three years before the JOBS Act was passed. As White tells it, “Bill Hambrecht was called before Congress in 2009, specifically to advise them on ways in which growing companies in the United States can access capital, expand and create jobs.

They brought Bill in and said, look, you're the IPO guy. Tell us what we can do. Bill replied, ‘You should look at Reg A’.”

Regulation A began with the 1933 Act. It was initially meant to be a small public offering of freely tradable shares. However, “the problem with Reg A under the old rules,” says White, “is that it only allowed a company to raise up to $5 million - which doesn’t go as far now as it did back in 1933.” It also requires filing through onerous Blue Sky laws, which can be prohibitively expensive. “So, Bill advised them to raise the limit on Reg A and give companies the ability to file with the SEC, which would pre-empt Blue Sky requirements, like a conventional IPO."

Though it took several years, legislation was drafted, and was finally incorporated into the JOBS Act of 2012 as Title IV: Changes to Regulation A. Thanks in large part to WR Hambrecht + Co, the terms “A+ IPO” and “mini-IPO” are becoming a ubiquitous part of wall street vernacular.

Continuing to Broaden Market Opportunities for Average Investors

WR Hambrecht + Co’s long track record of identifying issuers whose businesses exhibit characteristics of disruptive innovation, coupled with the firm’s involvement with Reg A legislation and its efforts as a pioneer in opening up IPO investing to the public are critical factors that set the firm apart from the growing number of funding portals in the space. “All of the funding portals today are startups,” says White. “Most of them don’t have backgrounds in investment banking and public offerings, and most of them seem to approach Reg A+ as if it's either a larger scale crowdfunding exercise, or a private placement that you can sell to the general public. I think it’s a mistake for issuers and portals to look at it that way.”

Moving forward, White anticipates the firm will continue to push toward a more open and level marketplace for all participants. “We continue to refine our offering mechanics to create the most efficient process for issuers and investors, while staying true to the legal and regulatory framework provided by FINRA and the SEC. Our process will continue to evolve as we learn what works and what doesn’t, and we absolutely learn more every day. We may one day even apply our auction process to an A+ IPO,” says White.

“One of the things that we wanted to do since we started the firm 15 years ago was to build a truly open platform for all suitable investors to participate in our offerings, regardless of whether they had a brokerage account with us. Under the conventional IPO process, we really didn’t see a way to do that, so we had everybody either open an account with us or have an account with a participating dealer. Now, I think we have finally cracked the code on how we can get anybody into an A+ mini-IPO offering in whatever way they're comfortable participating, from sophisticated institutional and professional investors to those investors who may not have a brokerage account at all.”

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


Symbol Name Price Change % Volume
SAM Boston Beer Company Inc. (The) 387.73 -2.43 -0.62 203,979 Trade
BABA Alibaba Group Holding Limited American Depositary Shares each representing one 175.29 4.13 2.41 13,814,343 Trade
INTC Intel Corporation 52.65 1.01 1.96 18,970,764 Trade
ADBE Adobe Inc. 279.39 1.61 0.58 1,969,235 Trade
RHHBY Roche Holding Ltd ADR (Sponsored) 36.21 0.19 0.53 1,090,808



Symbol Last Price Change % Change






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