So You Want to Go Public

Whether you’re looking to raise capital, quickly expand, or attract new employees with stock-option programs, opening your company to the IPO process might be the right call. It can be complex and time-consuming, though. Done right, selling your securities publicly can be an incredible lift.

Here is an outline of the steps you’ll need to take in generating your public offerings.

1. Choose an Underwriting Bank

You must select an investment bank to act as the underwriter for your IPO. Your choice must be registered with the Security Exchange Commission (SEC).

This bank will help set the initial offer price and will handle the sale of shares after the IPO is released. Take time to carefully consider your underwriter. You’ll want a bank with a solid reputation and track record of success, but also one with specific industry experience and a wide distribution network of potential investors.

2. Due Diligence

This stage is the most time consuming and bureaucratic in the process. It involves numerous paperwork and filing both between your company and the underwriter as well as with the SEC.

This paperwork amounts to contractual arrangements, registration statements, and underwriter planning documents. This stage highlights the importance of choosing an experienced underwriter as they will be responsible for the filing of much of this paperwork.

3. Set the IPO Price

After all of the due diligence filings, your underwriter will embark on a series of roadshows wherein they market your shares to the investing communities to get a good idea of the potential demand for your IPO. You can think of these as focus groups.

You will then meet with your underwriter to examine the cross-section of these roadshow results, the bulk of market research your underwriter has compiled, and your goals for your company and the IPO fundraising to set a price and the number of shares to be sold.

Be aware that your underwriter will likely push to slightly underprice your IPO at its release and that is not a comment on your potential success, but a proven release strategy.

4. Release the IPO

After SEC approval and final pricing decisions are made, it is time to release your IPO. Initial shares will hit the market at an agreed-upon date.

5. Market Stabilization

Over the next 25 days, your underwriter has the legal authority to manipulate the price of your stock through a variety of strategic moves. These include selling off more shares than originally agreed upon, purchasing shares below value, or locking-up shareholders’ ability to sell off shares.

These moves are made to ensure the best probability of success for the final step, market competition.

6. Transition to Market Competition

After 25 days, the SEC begins its prohibition on price manipulation. At this point, your IPO is released to the wild. You will no longer be valued by your prospectus, instead, the market will drive your value for the buying public.

Offering your IPO can be a lengthy process and certainly comes with some risk. If you take the time to choose the right underwriter, everything about the process will go more smoothly and your chances of succeeding on the public market will increase significantly.