The High Failure Rates of Small Company IPOs: A Win for Bankers
New research on microcap companies, defined as having less than $300 million in stock value, reveals that last year's microcap IPOs had an astonishing failure rate, with the share value of an average microcap company falling 65% by August 2023. The study found that 90% of the companies analyzed had money-losing returns. Investment bankers advising these companies, however, still profited, with underwriters booking fees of $100 million in aggregate from the IPO deals. Retail investors, on the other hand, were the biggest losers, as the stock prices plummeted, leaving them with significant losses. The research highlights the clash between the incentives of investment bankers and the executives of these companies and the credulous stock buyers who often bear the brunt of the losses.