An initial public offering or IPO is the way a company introduces shares of its stock to the public for the first time. The goal is to offer up shares for an existing company or to raise funds for a new one. Whichever the reason, the IPO process is a standard practice that follows a certain path.
The first thing a company must do before issuing stock is file a registration with the Securities and Exchange Commission (SEC.) Since the SEC has the power of nullifying any attempt to go public, a companys statement must be thoroughly accurate. Data concerning the financial health of the company must be entirely truthful. Due diligence should be the order of the day. Putting a company out onto the IPO Market is serious business. Every step in the IPO Process must be done carefully.
Once the registration is completed (and sometimes beforehand) companies will seek one (or more than one) investment banker. An investment banker will serve two purposes. The first of these services is to distribute the companys prospectus to potential future stock holders. A prospectus is a legal document that outlines an overall biography of the company. A few things that are standard to include are a breakdown of the companys market, biographical information of company executives, financial statements and projections on stock price. This document is often referred to as a red herring. The reason for this nickname is that on its cover is a stamped notice in red ink from the SEC that no stock may be purchased before registration has been approved.
The second thing that an investment banker, or underwriter, does is buy the companys stock and then resell it to the public. In a so-called road show, executives from the company and the underwriters promote the stock to possible investors. This is done by meeting and going over company strategy.
By selling its stock to an underwriter rather than selling it directly to the market, like the New York Stock Exchange, a company receives its money upfront and does not incur the risk of failure in the market. Additionally, they do not have to assume the costs of promotion. On the other hand, they are giving up the possibility of higher share prices that could be generated by the market.
The above does not happen until SEC approval has been granted. After approval and usually a day or so before the actual public offering, the company and the investment banker agree on a share price and the number of shares to be sold. The offering is complete when the company receives the money and delivers the shares to the underwriter.
Before deciding to buy a companys securities, underwriters do careful and complete research on that company. Prior to taking the risk, they want to be confident that the stock will sell for more than the price they paid. They face the possibility of huge profits but also the possibility of huge losses.
While, the risk is high for the investment banker, the IPO process provides very exciting opportunities for investors. The idea of getting involved with the next giant high-tech company during its early stages can mean great profit down the road. - 32383
The first thing a company must do before issuing stock is file a registration with the Securities and Exchange Commission (SEC.) Since the SEC has the power of nullifying any attempt to go public, a companys statement must be thoroughly accurate. Data concerning the financial health of the company must be entirely truthful. Due diligence should be the order of the day. Putting a company out onto the IPO Market is serious business. Every step in the IPO Process must be done carefully.
Once the registration is completed (and sometimes beforehand) companies will seek one (or more than one) investment banker. An investment banker will serve two purposes. The first of these services is to distribute the companys prospectus to potential future stock holders. A prospectus is a legal document that outlines an overall biography of the company. A few things that are standard to include are a breakdown of the companys market, biographical information of company executives, financial statements and projections on stock price. This document is often referred to as a red herring. The reason for this nickname is that on its cover is a stamped notice in red ink from the SEC that no stock may be purchased before registration has been approved.
The second thing that an investment banker, or underwriter, does is buy the companys stock and then resell it to the public. In a so-called road show, executives from the company and the underwriters promote the stock to possible investors. This is done by meeting and going over company strategy.
By selling its stock to an underwriter rather than selling it directly to the market, like the New York Stock Exchange, a company receives its money upfront and does not incur the risk of failure in the market. Additionally, they do not have to assume the costs of promotion. On the other hand, they are giving up the possibility of higher share prices that could be generated by the market.
The above does not happen until SEC approval has been granted. After approval and usually a day or so before the actual public offering, the company and the investment banker agree on a share price and the number of shares to be sold. The offering is complete when the company receives the money and delivers the shares to the underwriter.
Before deciding to buy a companys securities, underwriters do careful and complete research on that company. Prior to taking the risk, they want to be confident that the stock will sell for more than the price they paid. They face the possibility of huge profits but also the possibility of huge losses.
While, the risk is high for the investment banker, the IPO process provides very exciting opportunities for investors. The idea of getting involved with the next giant high-tech company during its early stages can mean great profit down the road. - 32383
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