Every business owner’s dream is to register their own companies for Initial Public Offering or IPO and it is probably one of the most important events in the life of a company with the intention to earn large sums of money in exchange for securities. Becoming an IPO-registered business means that you are opening the company to the public, which is also termed as “going public”, where company owners sell a part of their ownership to stockholders and later trade in the stock market exchange.
A company going public lets your business have more capital for massive expansion. It gives founders or owners enough cash in return for all the hard work they have put in. It also entices and aids top employees of the company as you can offer stock options.
Thinking about your company going public? Keep in mind that the IPO process can be very complicated. Thus, how can you prepare your company to become a publicly-listed company? Here are the important steps that will help ensure that your IPO process is successful.
1. Have a trusted and reliable management team
Greater demands are necessarily required when a company goes public amid the complexity of the process. Hence, people with strong communication skills that can deal with investors or SEC queries and clearly present the company’s vision and plans will help a lot as they operate the IPO process.
2. Be ready with your financial reporting systems
Whenever a company decides to go public, it has to disclose its full financial health, thereby adopting more complex financial and accounting requirements. The company must have a credible system in place to make sure all data are recorded appropriately and accurately.
3. Choose your investment bankers
Investment bankers or the “underwriters” play an important role in the IPO process. They look for and approach potential investors. They also act as the sales guy offering to buy shares from the company. Thus, choosing the right underwriters is the key to having a successful offering as they are responsible for investigating your business to verify the financial information given to the investors. Also, characteristics of your ideal investment banker should include sales and distribution capabilities and strong analyst coverage.
4. Write your company’s story
Writing and showing your company’s story or overview of the business lets the potential investors see the objectives of the company. A company’s story must show a clear goal, mission, and vision, and emphasize its strengths, greater market opportunity, and the reason behind your company being a good investment down the road.
5. Register with SEC
The next step would be to present the final company story as well as to file a registration statement with the U.S. Securities and Exchange Commission or SEC. This statement contains detailed information about the offering. It also includes information about the business, its financial history, and its future plans.
The registration statement becomes the preliminary prospectus once it’s filed with the SEC. A prospectus is a legal document explaining the securities offered to the public. The preliminary prospectus is also called the red herring. It’s called this because red ink is used on the front page to indicate certain information may change.
The SEC will examine the registration statement during a “cooling off” period. It informs the business of any necessary changes. The statement becomes the official prospectus once any necessary amendments are made. The prospectus can be used by the public to help them determine whether they want to purchase the securities for sale.
6. Start your roadshow
Once your company has heard and incorporated SEC’s comments and recommendations, then you may now go on to meet your prospective investors. Traveling and attending a lot of meetings, press conferences, city/area visits to introduce your company is a must and the merits of investing in it. This is also considered as your marketing venue to attract more investors.
7. Price your IPO
Deciding the offer price is important because it is the price at which the issuing company raises capital for itself. After completing the review process and generating a list of possible IPO investors, the company’s board of directors and underwriters agree on a value to which the company sets a price per share of stock.
However, after the stock starts trading on the secondary market, money raised through the sale of shares goes to the shareholder and not the company. Market conditions and the expected demand for the securities need to be examined closely. These final decisions are usually made right before the offering.
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