Question:
(a) What is the relevance of an Initial Public Offering (IPO) for an Internet startup?
(b) Consider the following extract from Google's IPO filing document (Form S-1) with the Security and Exchange Commission in the US, 29th April 2004
The auction process being used for our initial public offering differs from methods that have been traditionally used in most other underwritten initial public offerings in the United States. In particular, the initial public offering price and the allocation of shares will be determined primarily by an auction conducted by our underwriters on our behalf. We plan to conduct this auction in five stages-Qualification; Bidding; Auction Closing; Pricing; and Allocation.
(i) In what way was Google's IPO different from the conventional process and what could have been the motivation behind it?
(ii) What might be the possible reasons for the differential between an Internet startup's book value and its market value? (You may assume that the market value is generally much larger than the book value for a promising startup company).