As I understand the formula/process. Most IPO's are underwritten by an investment banking organization who specializes in providing venture capital to launch an organization toward a public offering. Once the valuation of the company who's public offereing is being considered is established then shares are created. These shares represent a certain value or stock domination as based on the company's worth through their product, service or manufacturing capability as identified by the Investment Banking Firm. In other words what current market share does the pending IPO company have, their current net worth and the future of their product and the market they currently affect, oh yes and do they have a proprietary product or patent and what's their competition about. This is a rather simplistic formula and for the sake of time will work for now. Those initial shares are first offered to large insitutional investors. These institutions are are capable of providing large capital in a single transaction, another winner in the intial IPO are the Insitutional Banking firms and Investment Houses who are offered a certain block of stocks, who then offer these to their higher rated investors. Most of these "A" stocks are tough to get ahold of unless your are a well healed investor, or someone who plays the market with regularity, or are an Officer with the IPO company. A very important aspect of the initial IPO as it is resided over by the traditional venture/investment banking firms is that there are set limits to the amount of stocks offered, in addition those stocks are being placed initially in a limited supply. Thus the law of supply demand versus market share percieved valuation all have an influence on the final intial stock valuation. Remember that Profit to Earnings is critical when looking for a fair valued stock. An auction based IPO does not usually deal with the traditional suspect of characters, the auction is offered up directly from the company itself with some oversight by their own Investment Banking Firm. This creates for as imagined a circumvention of the traditional Investment Banking mentality, but in all fairness the stocks are then not as regulated for the proper growth and valuation formula as most stocks are currently based on, it is then the buyer that determines the stock/company value and not the market as monitored by it's peers and community oversight boards such as the Banking community as a whole. Thus by opening up the auction the prices of each indivdual stock could soar astronomically out of sight, making it unreasonable for the average person to participate as initially was the thought and also doing the company a grave injustice of overvaluating their company. A correction would then be made overtime meaning that the true value of the auction bid-up was a frenzy and not reality...Sound Familar?