> This seems like a pretty good reason to auction the shares in order to maximize the amount of money the company takes in. That they very rarely do has always seemed kind of dirty to me.
There's nothing dirty about it. Public investors prefer to have a single price, because that's, well, how public markets generally operate after an IPO. They don't want to have to participate in an auction. The purpose of underwriting banks is to provide a single price to public investors while also providing a competitive market for the companies.
The auction occurs between the underwriting banks, who compete for the company's business. The company chooses the bank that they want to use for their IPO (price being one of several factors, as is true for any marketplace). There's some risk involved, which is why underwriting banks effectively take a cut - in that sense, they're acting like an insurer, which takes a premium in exchange for absorbing risk for both parties.
> There's nothing dirty about it. Public investors prefer to have a single price, because that's, well, how public markets generally operate after an IPO.
In what sense is there a single price in public markets? There is a constantly-shifting order book full of many different prices, and the price of the last trade changes by the second.
If IPOs were conducted as a multi-item second-price auction, then everyone could indeed pay the same, fair price, more in line with what you described than the public post-IPO market.
Because an IPO typically involves floating a largish number of shares at once, so you need a guaranteed, money-in-the-bank, commitment to the tune of tens of millions of dollars, potentially more.
Underwriters have access to a bunch of people who marked themselves as aggressive investors (SEC rule to avoid snake oil companies pitching their imminent incredible IPO to a random grandma), who can then commit to smaller chunks.
If you build a platform that is capable of raising eight-digit amounts, you can advertise yourself to pre-IPO companies as a possible underwriter.
A few questions to consider.
1) How are you going to acquire those investors? Underwriters typically enjoy a large wealth management group that can provide them with a list of eligible investors.
2) How will you handle the financial transactions themselves? Underwriters typically enjoy having a banking license or two, which allows them to hold customer funds, as well as brokerage license or two, which allows them to act as a custodian for those shares once they're bought.
3) How will you, the middleman platform, get paid?
> Why one need underwriter at all? Why certain investors are offered lower unfair price?
Those are two completely different things. Underwriters are there to ensure that the company is able to predict the amount of money that an IPO will raise. There are all sorts of legitimate reasons that a company needs to be able to predict the amount of money an IPO will bring in, starting with the fact that it's literally the entire point of an IPO.
Even in the Dutch-auction style that's been proposed in other comments, you don't solve the problem that some investors will be able to invest at the IPO price and others won't. The supply is finite; as long as demand ends up exceeding supply, you're still running the risk of people not being able to purchase shares, except now you've also done away with the invariant that a company can predict the amount of money it's going to raise.
(Note that even Google, which famously used a Dutch auction for its IPO, had an underwriter, and the underwriter had to change the share price at the last-minute because some larger institutional investors indicated that they were going to back out of the IPO and wait to trade later in the day. If that had ended up happening, it would have completely wiped out the money that Google was trying to raise by having the IPO in the first place).
There's nothing dirty about it. Public investors prefer to have a single price, because that's, well, how public markets generally operate after an IPO. They don't want to have to participate in an auction. The purpose of underwriting banks is to provide a single price to public investors while also providing a competitive market for the companies.
The auction occurs between the underwriting banks, who compete for the company's business. The company chooses the bank that they want to use for their IPO (price being one of several factors, as is true for any marketplace). There's some risk involved, which is why underwriting banks effectively take a cut - in that sense, they're acting like an insurer, which takes a premium in exchange for absorbing risk for both parties.