WHO will future e-commerce affect? Investment Banks, Entrepreneurs and Investors in the IPO process

In terms of whom the internet might affect, I believe that we should not just look at individual people, but also organizations and companies. Unless you are living under a rock during the past few months, you will know that the financial services sector of the economy has taken quite a large hit, especially investment banks. Although this is due to the sub-prime loan crisis and the credit crunch, I also believe that one of the reasons that Investment Banks might be doing poorly now and also into the future is due to the internet and new channels of information.

Now the reason that entrepreneurs go to I-Banks for IPO services is that an I-Bank can provide marketing for an unknown firm.  In addition, an I-Bank can throw its reputation behind an unknown company.  For example, most company’s want to go to Goldman Sachs because they know that investors trust Goldman’s name and will want to invest in a company that Goldman backs.  In addition, I-Banks can be a major source of information for both the capital markets and the entrepreneur.

However, in the future I foresee a world in which both entrepreneurs and the capital market will be much less dependent on I-Banks and will utilize the internet for an IPO.  Although Dutch Auctions (internet IPO’s) are not too common right now, I see them becoming more popular in the future.

I believe future IPO’s will all take place on the internet.  Internet companies may be the future I-Banks.  For example, there could potentially be a new website called www.ipo.com in which companies that needs to raise money will register their companies information on this website and investors willing to invest money can also go on the website to scour for promising companies to invest money in.

Each separate company will be able to create a profile for their individual company on the internet with a business plan and all financial projections included.  The companies can utilize this kind of website to find out how much their company may be able to raise on the capital market, and also to determine share price and amount of shares.  The website can provide services of financial evaluation by employing a group of financial advisors or professional investors that can be contracted to look over information on company profiles and give entrepreneurs an informed evaluation of firm value, share price and share number.

This service should be charged but due to the variety of websites offering these kinds of services and the number of firms who are taking this online IPO option, these services should be far less than the kind of prices I-Banks will charge.  In addition, an entrepreneur could choose to pay for more money for a more qualified financial analyst or to pay more than one financial analyst to get an aggregate of valuations.

Another important source of information this kind of website can provide for firms looking to raise money is a survey of the market.  The website will let companies look at information of other companies in the same market that are also looking to go through an IPO or have already gone through an IPO.  By comparing their company to how other companies in a similar market perform on IPO’s, an entrepreneur will be able to gauge market demand and make a more informed decision about how to price their company.

These kinds of websites can also be a great help for investors.  For people with excess money looking to invest in companies with strong future potential, they can simply scour these IPO websites to look up companies in markets that they are interested in investing in and read up financial expert’s valuation of these companies.

I believe investors will also choose IPO websites over traditional I-Banks because IPO websites gives investors much more flexibility and time.  Investors will be able to see a number of companies that are preparing to be listed on the stock market and the date of their IPO.  Thus, they can plan accordingly and prepare their investment portfolio a long time before companies are actually listed.  This type of benefit can give investors an unprecedented advantage over the traditional I-Banking route.

However, the only one shortcoming of these websites is that they will not be able to provide the same type of reputation or feeling of security that traditional I-Banks may be able to provide.  Investors may need to be more savvy or cautious to only put money in reliable companies that will perform well in the future.

This type of internet IPO model will not only change the relationship between entrepreneurs and the capital market, it will revolutionize the way money from the capital markets reaches entrepreneurs.  With the internet, the entrepreneur and the capital market can gain access to unprecedented amount of information; thereby, lessening the power of the investment bank. Information is power, and with the internet, the I-bank’s monopoly on information is beginning to decrease.  And entrepreneurs and investors can leverage the internet to reach a new competitive advantage.