Facebook's highly vaunted IPO was supposed to be a shining moment for American entrepreneurship. Instead, disaster struck: Nasdaq systems couldn't list the stock on time, would-be investors grew angry and impatient, and the actual share price--pegged at $38, thanks to seemingly strong demand--plummeted 20% within two trading days of its debut.
Now investors are suing Facebook and its bankers, alleging that they disclosed information selectively to give preferred clients an unfair advantage. Meanwhile, top U.S. regulators are investigating exactly what Facebook's lead underwriter, Morgan Stanley, shared with clients pre-IPO.
All told, what should have been a triumph for Wall Street ultimately reinforced its most damning stereotypes: that IPOs are engineered to maximize venture-capital profits and banking fees at the public's expense and that its systems have become too complex to manage. "Unless the exchanges can convince people that the process is fair," warns Bob Henderson, a partner at financial-law firm Polsinelli Shughart, "they may not want to go back in."
So what--if anything--can restore investor confidence? Here are three IPO processes that could function better than Facebook's.