NetSuite IPO Wins Fair-Value Fans

Companies planning to go public in 2008 may take a second look at NetSuite's results. On the first trading day, investors' willingness to pay just a few percent upside to the offering price is an indication that the pricing was fair, according to MorningNotes IPO analyst Ben Holmes. "Does it make the game a little less sexy? Yes," Holmes acknowledged. "At the end of the day, the process worked. I say they nailed it."

"A Dutch auction is a democratic process," says Debby Farrington, general partner at venture firm StarVest, which has held a 5.1% stake in NetSuite since 2000. "It treats all bidders the same. The little guy has the same chance to put in bids as the big institutions."

The auction process is more beneficial to the company going public and its venture investors, because bankers setting price in a typical IPO may favor their institutional clients. "With an auction, they don't leave anything on the table. You don't see shares shoot up 70%" on their first trading day, she added.

NetSuite originally listed a price range of $13 to $16, revising the range upward twice the day of the offering.

Because of the rarity of auction-style IPOs, for investors looking to buy shares on the first trading day, doing the math was no easy task, notes Holmes. "No one new how to game this thing," with some buyers going short while others were long, Holmes said.