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IPO Process

IPO Steps

1

Select Underwriters

Bake-off — banks pitch to lead the deal. Lead bank is the bookrunner.

2

File S-1

Registration statement disclosing financials, risks, business — public filing.

3

Roadshow

Management presents to institutional investors over 1-2 weeks.

4

Pricing & Trading

Bookrunner sets price the night before. Stock starts trading the next morning.

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Explore the intricacies of an Initial Public Offering (IPO), including its process, advantages, and drawbacks for a company transitioning from private to public.



  • An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance.
  • Companies must meet requirements by exchanges and the Securities and Exchange Commission (SEC) to hold an IPO.
  • IPOs provide companies with an opportunity to obtain capital by offering shares through the primary market.
  • Companies hire investment banks to market, gauge demand, set the IPO price and date, and more.
  • An IPO can be seen as an exit strategy for the company’s founders and early investors, realizing the full profit from their private investment.

IPO Process:

  • Valuation and preparing the company
  • Due Diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.
  • Preparation of prospectus. A prospectus is a formal document that is required by and filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering to the public. The prospectus can help investors make more informed investment decisions because it contains a host of relevant information about the investment.
  • Application for listing on exchange
  • Management preparation presentation and pre-marketing to select institutions
  • Roadshow / Book Building – that step we’ll discuss separately in the following videos
  • Final pricing, listing, and support

Pros:

  • Can raise additional funds in the future through secondary offerings
  • Attracts and retains better management and skilled employees through liquid stock equity participation
  • IPOs can give a company a lower cost of capital for both equity and debt

Cons:

  • Significant legal, accounting, and marketing costs arise, many of which are ongoing
  • Increased time, effort, and attention required of management for reporting
  • There is a loss of control and stronger agency problems