Lending Club, which is a peer-to-peer online lender, had an IPO this Thursday, December 11. After a full day of trading, shares closed at 56% above the initial IPO price. As often happens, many vociferous investment banking haters called this an IPO "pop", in which the banks stole millions of dollars from the company.

The truth is IPO's are a messy ordeal, and are full of estimations and guesswork by the bankers. Perhaps nobody can better explain what really goes on during an IPO than the notorious Epicurean Dealmaker. Here's an excerpt from the fabled Wall Street philosopher:

Now, you can see that this exercise is an art, not a science. Investment bank IPO pricing is the epitome of (very) highly educated guessing. We often get it wrong, but, on average, IPO pricing is normally pretty accurate. After all, it's our job, and we do it well. The picture gets complicated, however, when the company in question, like LinkedIn, does not have any comparable peers among listed public companies. Our guesses become much less educated and much more finger-in-the-air type things. There is no cure for this but to go to market and see what investors themselves tell you they are willing to pay.

For a thorough explanation of this sensitive topic, I recommend you read his full post on LinkedIn's IPO pop. The very same logic could be applied to last weeks Lending Club offering. Occam's razor taught this concept to us hundreds of years ago, so let's not blame the banks for the behavior of the market.