How to evaluate an IPO, according to Houston researchers

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In emerging markets, pricing — not reputation — drives the partnership between underwriter and IPO. Photo via business.rice.edu

Many investors assume they can judge the strength of an IPO based on the reputation of the underwriter supporting it.

However, a recent study by Rice Business professors Anthea Zhang and Haiyang Li, along with Jin Chen (Nottingham University) and Jing Jin (University of International Business and Economics), proves this is only sometimes true — depending on how mature the stock exchange is.

Getting your company listed on the stock market is a big step. It opens new opportunities to raise money and grow the business. But it also means facing increased regulations, reporting requirements and public scrutiny.

To successfully launch an initial public offering (IPO), most companies hire “underwriters” — financial services firms — to guide them through the complex process. Because underwriters have expertise in valuations, filing paperwork and promoting to investors, they play a crucial role in ushering companies onto the market.

In well-established markets like the New York Stock Exchange (NYSE), an underwriter’s reputation carries immense weight with investors. Top-tier banks like Goldman Sachs have built their reputations by rigorously vetting and partnering with only the most promising companies. When Goldman Sachs takes on the role of underwriter, it sends a strong signal to potential investors that the IPO has met stringent standards. After all, a firm of Goldman’s caliber would not risk tarnishing its hard-earned reputation by associating with subpar companies.

Conversely, IPO firms recognize the value of having a prestigious underwriter. Such an association lends credibility and prestige, enhancing the company’s appeal. In a mature market environment, the underwriter’s reputation correlates to the IPO’s potential, benefiting both the investors who seek opportunities and the companies wanting to make a strong public debut.

However, assumptions about an underwriter’s reputation only hold true if the stock exchange is mature. In emerging or less developed markets, the reputation of an underwriter has no bearing on the quality or potential of the IPO it pairs with.

In an emerging market, the study finds, investors should pay attention to how much the underwriter charges a given IPO for their services. The higher the fee, the riskier it would be to invest in the IPO firm.

To arrive at their findings, the researchers leveraged a unique opportunity in China’s ChiNext Exchange. When ChiNext opened in 2009, regulations were low. Banks faced little consequence for underwriting a substandard IPO. Numerous IPOs on ChiNext were discovered to have engaged in accounting malpractice and inaccurate reporting, resulting in financial losses for investors and eroding confidence in the capital markets. So, for 18 months during 2012-2013, ChiNext closed. When it reopened, exchange reforms were stricter. And suddenly, underwriter reputation became a more reliable marker of IPO quality.

“Our research shows how priorities evolve as markets mature,” Zhang says. “In a new or developing exchange without established regulations, underwriter fees paid by IPO firms dictate the underwriter-company partnership. But as markets reform and mature, reputation and quality become the driving factors.”

The study makes a critical intervention in the understanding of market mechanisms. The findings matter for companies, investors and regulators across societies, highlighting how incentives shift, markets evolve and economic systems work.

The research opens the door to other areas of inquiry. For example, future studies could track relationships between underwriters and companies to reveal the long-term impacts of reputation, fees and rule changes. Research along these lines could help identify best practices benefiting all market participants.

“In the future, researchers could explore how cultural norms, regulations and investor behaviors influence IPO success,” says Li. “Long-term studies on specific underwriter-firm pairs could reveal insights into investor confidence and market stability. Understanding these dynamics can benefit companies, investors and policymakers alike.”

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This article originally ran on Rice Business Wisdom and was based on research from Yan “Anthea” Zhang, the Fayez Sarofim Vanguard Professor of Management – Strategic Management at Rice Business, and Haiyang Li, the H. Joe Nelson III Professor of Management – Strategic Management at Rice Business.

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Rice University, Houston Methodist launch new institute to revolutionize health care through AI, innovation

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Rice University and Houston Methodist have established through a multi-year joint effort the Digital Health Institute, which aims to transform healthcare through advanced technology and the collaborative expertises of the university and hospital.

Rice’s leadership in engineering, digital health and artificial intelligence will combine with Houston Methodist’s academic medicine and research infrastructure.

“This partnership embodies Rice’s bold vision to lead at the forefront of innovation in health and responsible AI,” Rice President Reginald DesRoches says in a news release. “By combining our strengths with Houston Methodist, we are creating a transformative platform to address critical challenges in healthcare with solutions that are ethical, accessible and impactful. This initiative exemplifies our commitment to driving interdisciplinary collaboration and advancing global health for the benefit of humanity.”

Leading the initiative will be Rice’s Ashutosh Sabharwal, the Ernest Dell Butcher Professor of Engineering and professor of electrical and computer engineering, and Houston Methodist’s Dr. Khurram Nasir, the Centennial Chair in Cardiovascular Medicine, and Dr. William Zoghbi, division chief of cardiovascular prevention and wellness. Rice and Houston Methodist have worked previously with the Center for Neural Systems Restoration that opened earlier this year and the Center for Human Performance that was established in 2022.

The Digital Health Institute allows for both institutions to share data, and resources that focus on key areas like the early detection through AI algorithms for early diagnosis of cancer, infections, cardiovascular diseases and other conditions, predictive analytics that utilize real-time monitoring that can predict and prevent events such as strokes and heart failure, and the development of novel sensors, wearables and ingestibles to innovate new remote monitoring and care pathways.

The Digital Health Institute will also work to utilize more personalized medicine efforts, developments of new novel and assistive technologies, expansion of telemedicine, and proactive self-care management through AI-driven patient self-management.

“This partnership between our institutions marks a bold new chapter in driving meaningful innovation at the intersection of healthcare and technology through solutions that are both visionary and practical,” Dr. Marc Boom, president and CEO of Houston Methodist, adds. “Our long-standing relationship with Rice University has produced impactful collaborations, but this initiative is by far the most transformative endeavor in our shared commitment of leading medicine through innovation.”

Rice President Reginald DesRoches and Houston Methodist CEO Marc Boom announced the new partnership at the Ion. Photo courtesy of Rice

Elon Musk wants to turn SpaceX's Starbase site into a Texas city

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SpaceX is launching a new mission: making its Starbase site a new Texas city.

Billionaire Elon Musk 's company last week sent a letter to local officials requesting an election to turn what it calls Starbase — the South Texas site where SpaceX builds and launches its massive Starship rockets — into an incorporated city. Residents of the area known as Starbase submitted the petition, according to the company.

The area is on the southern tip of Texas at Boca Chica Beach, near the Mexican border. Earlier this year, Musk announced he was moving the headquarters of SpaceX and his social media company X from California to Texas.

“To continue growing the workforce necessary to rapidly develop and manufacture Starship, we need the ability to grow Starbase as a community. That is why we are requesting that Cameron County call an election to enable the incorporation of Starbase as the newest city in the Rio Grande Valley,” Kathryn Lueders, the general manager of Starbase, wrote in a letter to the county.

It's not the first time turning Starbase into its own city has been floated. Musk proposed the idea in 2021 when he wrote a social media post that simply said, “Creating the city of Starbase, Texas.”

Cameron County Judge Eddie Treviño Jr., the county’s top elected official, said despite the talks of incorporation in 2021, this was the first time a petition was officially filed.

“Our legal and elections administration will review the petition, see whether or not it complied with all of the statutory requirements and then we’ll go from there," Treviño said on Thursday.

More than 3,400 full-time SpaceX employees and contractors work at the Starbase site, according to a local impact study issued by Trevino earlier this year.

SpaceX's rapid expansion in the region has drawn pushback from some locals. Earlier this year, a group called Save RGV sued the company in July over allegations of environmental violations and dumping polluted water into the nearby bay. SpaceX said in response that a state review found no environmental risks and called the lawsuit “frivolous.”

Editor's Picks: 7 favorite Houston Innovator Podcast episodes of 2024

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Editor's note: This year, recorded over 40 episodes of the Houston Innovators Podcast — a weekly discussion with a Houston innovator, startup founder, investor, and more. I've rounded up seven podcast episodes that stood out for me looking back at the year of recordings. Scroll through to see whom I selected and stream their individual episodes, and tune into the last episode of the year where I explain why I enjoyed each conversation.



Episode 220 - Better than just 'inclusive' - Denise Hamilton of WatchHerWork

Houstonian Denise Hamilton is coming out with a book she hopes helps leaders reach beyond inclusivity. Photo courtesy of WatchHerWork

Denise Hamilton says she's been used to looking around and realizing she's the only woman or African American in the room, and for the past nine years, she's been providing resources and education to trailblazing women like her. Now, she wants to prepare current and future leaders on how to go beyond inclusivity and work toward indivisibility.

Hamilton's book, "Indivisible: How to Forge Our Differences into a Stronger Future," publishes February 6 from Countryman Press. She explains that the book comes from years of her on personal experiences, as well as inspiration from the women she's met with her company, WatchHerWork, multimedia digital platform providing advice and resources for professional women.

"I've learned a lot of lessons about what skills work, what behaviors are not intuitive, and built WatchHerWork with the intention of creating a space where people can get all of that advice — and juicy goodness — so that they can learn what they needed to do to be authentically successful," Hamilton says on the Houston Innovators Podcast.

"This led to me being brought in as a speaker, and ultimately has led to me becoming an author," she continues. "It's always shocking when people want to listen to what you want to say. It's unbelievable." Continue reading the original article.

Episode 231 - Fostering a collaborative energy transition ecosystem - Barbara Burger

Houston energy leader Barbara Burger joins the Houston Innovators Podcast to discuss the energy transition's biggest challenges and her key takeaways from CERAWeek. Photo courtesy

When Barbara Burger moved to Houston a little over a decade ago to lead Chevron Technology Ventures, she wondered why the corporate venture group didn't have much representation from the so-called energy capital of the world.

“I had no companies in my portfolio in CTV from Houston, and I wondered why,” Burger says on the Houston Innovators Podcast.

Much has changed in the ecosystem since then, she says, including growth and development to what the community looks like now.

“There are a few things I’m proud of in the ecosystem here, and one of theme is that it’s a very inclusive ecosystem,” she explains, adding that she means the types of founders — from universities or corporate roles — and the incumbent energy companies. “The worst way to get people to not join a party is to not invite them.”

“No one company or organization is going to solve this. We have to get along,” she continues. “We have to stop thinking that the mode is to compete with each other because the pie is so big and the opportunity is so big to work together — and by and large I do see that happening.”Continue reading the original article.

Episode 233 - How a Houston angel earns their wings - Mitra Miller of Houston Angel Network

Mitra Miller, vice president and board member of the Houston Angel Network, joins the Houston Innovators Podcast to share her passion for growing angel investors in Houston. Photo via LinkedIn

One of the biggest components of a well-functioning startup ecosystem is inarguably access to capital, and Mitra Miller is dedicated to enhancing education around investment and growing Houston's investor base.

As vice president and board member of the Houston Angel Network, the oldest angel network in Texas and one of the most active angel networks in the country, Miller strives to provide guidance to new and emerging angel investors as well as founders seeking to raise money from them.

"Most founders have no idea or understanding of how investors think — we are not an ATM," Miller says on the Houston Innovators Podcast. "We are really partners you are getting married to for the next 5, 8, 10 years — sometimes longer. We need to bring your allies in every sense of the word." Continue reading the original article.


Episode 237 - Gearing up for 100x growth - Tim Latimer of Fervo Energy

Tim Latimer, CEO and co-founder of Fervo Energy, joins the Houston Innovators Podcast. Photo courtesy of Fervo Energy

Geothermal energy has been growing in recognition as a major player in the clean energy mix, and while many might think of it as a new climatetech solution, Tim Latimer, co-founder and CEO of Fervo Energy, knows better.

"Every overnight success is a decade in the making, and I think Fervo, fortunately — and geothermal as a whole — has become much more high profile recently as people realize that it can be a tremendous solution to the challenges that our energy sector and climate are facing," he says on the Houston Innovators Podcast.

In fact, Latimer has been bullish on geothermal as a clean energy source since he quit his job as a drilling engineer in oil and gas to pursue a dual degree program — MBA and master's in earth sciences — at Stanford University. He had decided that, with the reluctance of incumbent energy companies to try new technologies, he was going to figure out how to start his own company. Through the Stanford program and Activate, a nonprofit hardtech program that funded two years of Fervo's research and development, Latimer did just that. Continue reading the original article.

Episode 248 - Houston's beating heart - Dr. William Cohn of The Texas Heart Institute

Dr. William Cohn is the chief medical officer for BiVACOR, a medical device company creating the first total artificial heart. Photo via TMC

It's hard to understate the impact Dr. William Cohn has had on cardiovascular health as a surgeon at the Texas Heart Institute or on health care innovation as the director of the Center for Device Innovation at the Texas Medical Center. However, his role as chief medical officer of BiVACOR might be his most significant contribution to health care yet.

The company's Total Artificial Heart is unlike any cardiovascular device that's existed, Cohn explains on the Houston Innovators Podcast. While most devices are used temporarily for patients awaiting a heart transplant, BiVACOR's TAH has the potential to be a permanent solution for the 200,000 patients who die of heart failure annually. Last year, only around 4,000 patients were able to receive heart transplants.

"Artificial hearts historically have had bladders that ejected and filled 144,000 times a day. They work great for temporary support, but no one is suggesting they are permanent devices," Cohn says on the show. Continue reading the original article.

Episode 251 - Building enduring innovation ecosystems - Jon Norby of Anthropy Partners and EconWerx

Jon Nordby's career has been focused on cultivating a culture for innovation, and now he's focused on human potential technology opportunities. Photo courtesy

In his role overseeing startup accelerators for MassChallenge, Jon Nordby started noticing one industry vertical stood out in terms of success and opportunities: Human potential. Now, Nordby is a founding member of an investment firm looking for those opportunities.

Nordby, who served in various leadership roles at MassChallenge — including managing director and head of ecosystems — said he started realizing the opportunities within the organization's space and sports tech programs.

"What we realized over a couple of years running the program was that sports tech as a theme was too limiting," Nordby says on the Houston Innovators Podcast. "We were finding really great technologies, but we were limited at the market size of teams and leagues to deploy those technologies."

"Over the course of that program, we found that the things that were related more to human health and performance tended to out perform all of the other things related to sports tech — like media, entertainment, gambling," Nordby continues. "Still really great markets for those technologies, but we found a lot more traction for human performance." Continue reading the original article.

Episode 263 - Maintaining a legacy of innovation - Reginald DesRoches of Rice University

Rice University President Reginald DesRoches joins the Houston Innovators Podcast to discuss balancing tradition with growth, innovation, and global impact in education. Photo courtesy Tommy LaVergne/Rice University

How does a historic university maintain its legacy while still making room for growth and increased opportunities? That's what Rice University President Reginald DesRoches considers with every decision he makes.

"It's this idea of preserving what's special about the university, while also knowing we need to adapt to a new time, a new Rice, a new time in higher ed, and a new time in society," DesRoches says on the Houston Innovators Podcast. "There's a healthy tension between preserving what Rice is known for — the culture of care, the close-knit community — while knowing that we need to grow, have a global impact, and position Rice on a global scale. It's something that's constantly in my mind to make sure we do both." Continue reading the original article.


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