"Auction-style IPO" reappears! Figma highlights the hotness of US stock IPOs
Figma requires investors to submit limit orders instead of traditional market orders to achieve a more accurate stock valuation. This strategy was previously adopted by companies like DoorDash and Airbnb during the COVID-19 pandemic, and its reappearance indicates a recovery in the U.S. IPO market, with rising demand from investors for high-quality tech stocks. Analysts point out that Figma aims to demonstrate that this is a hot deal and encourages suitable investors to pay a high price for it
Design software company Figma is adopting an auction-like IPO pricing mechanism, requiring potential investors to specify the exact number of shares they wish to purchase and at what price, in order to maximize returns in its highly anticipated public listing. The re-emergence of this strategy may signal a resurgence in the U.S. IPO market.
On July 23, media reports indicated that sources revealed the San Francisco-based company and some of its supporters are seeking to raise up to $1.03 billion through this listing. Figma requires investors to submit limit orders, rather than the market orders commonly seen in traditional IPOs, to obtain more precise stock valuation information.
Analysis points out that while several tech companies, such as DoorDash and Airbnb, used this method during their IPOs amid the COVID-19 pandemic, this strategy gradually fell out of favor as the market slowed down. Its reappearance indicates that investor demand for high-quality tech stocks is on the rise. David Erickson, a part-time professor at Columbia Business School, stated:
"Figma wants to show that this is a hot deal and encourage the right investors to pay a premium for it, and currently, it (Figma) is the only option in the market."
The auction mechanism aims to obtain more precise pricing information
The limit order requirement adopted by Figma aims to gather more detailed information about investors' judgments on stock value.
In traditional IPOs, participating investors submit market orders, settling at the best available price. For hot tech IPOs like Figma, some investors may submit large orders without specific price limits, hoping for a substantial allocation. This strategy can exaggerate the apparent demand for the stock, making it more difficult for bankers to determine the offering price.
According to insiders, Figma's requirement for limit orders is intended to provide the company with finer information about what investors believe the stock is worth. This method theoretically allows the company to capture more hidden investment enthusiasm.
For example, Circle Internet Group Inc., a stablecoin issuer, saw its stock soar 168.5% on its first trading day after its IPO in June, and its current price is over 500% higher than the IPO price, indicating that many investors are willing to pay more than the previously set price of $31 per share.
For Figma, this strategy may help the company approach the $20 billion valuation that Adobe agreed to pay when it planned to acquire the company in 2022. That acquisition deal was abandoned at the end of 2023 due to regulatory concerns.
According to a previous article from Jianwen, on July 21, Figma released its latest prospectus, planning to issue approximately 37 million shares, with a pricing range of $25 to $28 per share. At the upper limit of the offering price, the IPO fundraising could reach up to $1 billion, and the fully diluted valuation of the company would reach $16.4 billion.
Media reports previously indicated that Figma's IPO is expected to be priced on July 30. The company's stock is planned to trade on the New York Stock Exchange under the ticker symbol FIGFigma's IPO is jointly underwritten by Morgan Stanley, Goldman Sachs, Allen & Co., and JP Morgan. This strong lineup of underwriters reflects the market's high attention and anticipated demand for the company's IPO
