The issue with dutch auctions is that, unless you ask for a miniscule amount of money, the major investors in the IPO will drive down the price (call it collusion).
The game that wall street plays with regards to IPO is simple: I'll let you buy in most of your shares at 10 dollars if you will buy a few shares at 20 dollars when the IPO opens. This way, the average price is much closer to 10 dollars, yet it convinces others to participate in the IPO trade.
As far as the companies are concerned, the runners ensure that there is institutional demand before the IPO goes public, to ensure that the company can actually sell the requested number of shares. It's much easier to follow Wall Street's rules (and leverage their capital relationships) than to stake out on your own (essentially what google did).
In retrospect, Google the firm paid dearly, as was evidenced by the resulting price rise.
Thanks for the insightful explanation, though I am wondering about the practice of creating the artificial "pop" when IPO opens, why is this kind of premeditated pumping allowed?
The large institutional investors will not participate unless there is something for them. There's a lot of shadiness all around, but essentially you are asking funds to sink tens or hundreds of millions of dollars into a new company which may be very risky. As a result, the baked-in pop gives those investors some assurance that they won't lose their shirts.
At the end of the day, the company needs to receive cash from somewhere and the banks don't want to carry the risk, so they offload it to their customers (who front the cash), and they essentially offload it to the public.
The game that wall street plays with regards to IPO is simple: I'll let you buy in most of your shares at 10 dollars if you will buy a few shares at 20 dollars when the IPO opens. This way, the average price is much closer to 10 dollars, yet it convinces others to participate in the IPO trade.
As far as the companies are concerned, the runners ensure that there is institutional demand before the IPO goes public, to ensure that the company can actually sell the requested number of shares. It's much easier to follow Wall Street's rules (and leverage their capital relationships) than to stake out on your own (essentially what google did).
In retrospect, Google the firm paid dearly, as was evidenced by the resulting price rise.