The Google offering happened a while after I left WR Hambrecht + Co, but I can’t believe I never saw this Charlie Rose interview with Bill Hambrecht. It seems like ancient history viewing it now. Looking at the offering price and today’s price one might think the deal was underpriced by the modified dutch auction. As I recall, at the time, many thought the IPO offering price of $85 per share was too high.
Hambrecht’s modified Dutch auction method of pricing IPOs still isn’t understood very well. Basically it’s the idea of the wisdom of crowds (or markets) applied to determining the appropriate offering price for a company’s initial public offering. Think of it like Digg for pricing the initial stock price for a company. It’s a like asking the community of investors what the right price should be— a radical use for a social network.
The method works best when a broad range of people have an opinion on the proper initial price for a company’s stock (a high bid to cover ratio). It doesn’t work very well when the company isn’t well known. In cases like this investors (bidders in the auction) actually have to read the prospectus and attempt to determine a reasonable price. This, of course, is nearly impossible. It would be like trying to rate a new album from a band you’d never heard based on the tax returns of the musicians.
For those in the tech community looking for liquidity events through an IPO (as opposed to acquisition), you’d do well to at least take the time to understand how the Dutch auction works. Back in the day Joe Tennis and I put together a flash animation explaning how Hambrecht’s OpenIPO works. Check it out, it still holds up pretty well.