Yes, but shareholders have to have confidence in a share price rise.
The way a normal ipo works is like this: a company like Facebook approaches an underwriter. They create a prospectus to sell shares of the company. Let’s create a fake example so as not to get caught up in actual details.
FaceSpace believes their company is worth a billion dollars or more. They create an offering thru Maxim to sell 100 million shares at $10 each. Maxim offers this prospectus to their wealthy investors. Investors review the prospectus and believe the company should have a 2 billion market cap. Investors line up for those 100 million shares at 10 bucks.
On the day of the ipo, FaceSpace gets their billion dollars. The wealthy investors then offer to sell their shares thru brokers. Other investors want a piece of FaceSpace, so the share price soars to $20. The wealthy investors sell their shares and make 100% profit in one day.
This sort of thing happens all the time. A failed ipo is one where the price drops after their initial purchase and the big money people lose instead of gain. Failed ipos happen too.
These big money investors may or may not sell all of their holdings, but they intend to sell some shares right away. Otherwise no one else can buy shares of FaceSpace and the price stays frozen.
The point here is that wealthy investors want to be almost certain of a short term profit. They are unhappy if the share price tanks and they have to wait a few months to recoup their investment.
A secondary offering is trickier because a market already exists for the shares. The offering has to be structured in a way to appeal to investors above and beyond what they can purchase on the open market. Thompson has to offer a discount of one sort or another. It is dangerous to discount on share price especially for a company with no earnings and no P/E ratio. It looks like Thompson is structuring this offering to include a discount via the warrant.
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