IPOs Of The Smallest Companies Post Astonishing Failure Rates, But Bankers Still Win

executives at Bay Area broadband company Actelis Networks felt a hankering to go public. They fixed their eyes on the Nasdaq prize. But there was a snag: their stock, restricted to employees and early investors,What happened next is a textbook case, according to new research on microcap companies, defined as having less than $300 million in stock value, and their initial public offerings.

What was a gold mine for the bankers turned out to be the shaft for the retail investors. Fast-forward a week, and Actelis’ stock took a 37% nosedive, perhaps aided by a mad dash to cash in on those warrants while they were hot. Today, 17 months later, Actelis trades at about a dollar a share, down 95% from the initial first-day $24 close. The company didn’t respond to requests for comment.

The merits of having the big guns buy your stock are stark after a company spends time trading on OTC Markets, which is less formal, has no middleman and carries with it a reputation for being edgy. Retail investors, the kind who trade at home, account for about. They can be a fickle bunch, often swayed by short-term hiccups, a report on social media or the financial flavor of the week, making them more of a wild card for companies trying to maintain steady stock values.

Flip the page and look at a comparable group of stocks, at least in size, like the iShares MicroCap ETF, where 45% of shares are held by heavyweight investors. Clearly, just being on an exchange isn’t enough to entice the heavy hitters.“You know these aren’t being offered to institutional investors or to buy-and-hold retail,” Paltrowitz told. “They’re being sold to, in essence, unregistered stock flippers who see these deals coming.

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