For helping take a company public, investment banks charge a whopping 7% fee (among numerous other fees, including a “greenshoe option” to purchase shares that are nearly guaranteed to gain value). For example, daily deal darling Groupon just went public on Friday and raised $700 million (i.e., 35 million shares at $20 apiece) and therefore the investment banks will take home a whopping $49 million. In the third quarter of 2011 55 companies filed to go public (including Farmville creator Zynga) looking to raise roughly $9.5 billion – the underwriting investment banks will take home a tidy $665 million for their part in the effort.
What is truly interesting about the 7% number is that it never seems to vary. In fact, over the past two decades I have never known it to change. Ever. I know that antitrust investigators have sniffed around this industry since the dot-com bubble of the 1990s but nothing ever seemed to come from those efforts.