Question

How can you ensure a successful IPO for a new startup company? What would you need to ensure was in place to make the company attractive to outside investors?

Answer 1

Initial Public Offering (IPO) as defined by the U.S Securities and Exchange Commission as the first time a company sells its shares to the public or general investors. Successful and Profitable companies with proven track record always startegically go public for expansion for raising funds since the investors always have the fundamental and technical historical trends to analyse these companies valuation/worth. New start ups go for IPO at the very beggining of their business cycle mainly to raise funds. There are stories about entrepreneurs becoming millionaires or billionaires after their start up went public.However it is not a cheap process and without any proven track record or a dynamic industry to vouch for the whole costly process may become additional debt burden for the start up company. Thus it is very impreative that the IPO is successful.

Process of IPO for a start up:-

(a) The company hires an underwriter or a middle man who would raise funds from the investors on behalf of the start up. The underwriter is an investment bank which is hired to streamline the whole process.

(b) The company negitiates its terms with the underwriter as to the shape of the entire IPO. All the terms, types and modalities are legally laid down and both the parties mutually agree to the IPO erms.

(c) The underwriter prepares for registeration with the Securities and Exchange Authorities for the IPO on behalf of the start up. At this stage all the financial documents of the start up are duly verified by Securities and Exchange bord and after the successful completion of this process the board offers them a prticular date for the IPO.

(d) Underwriter releases a red herring prospectus/intial prospectus-a guide to the start up. This is done during the period the securities board is verifying the filed facts of the start up which gives a heads up on the company. In case of start up companies the red herring prospectus is what drives the investor thus this booklet has to be crisp, clear and effective. The investor should be highly attracted to the mission and vision of the company which will instigate the urge in him to invest in the start up company. The investor should be able to visualise the company in the next short term and long term trajectory. Also the details of management of the company should be emphasised so that the investor could relate to their vision and put their bets on the IPO.

(e) The company and its underwriter now decide on the offer price based on the hype created by the intial prospectus in the minds of the investor.

(f) The underwriter sells the securities on the stock exchange.

A comprehensive business plan is much needed for start up companies before they go public. An IPO is a transformational event and when executed successfully it changes the fate of the company and all its stakeholders.

Planning and good preparations right from the top management/executive level with coordinated choreography from each employee in the company, is most crucial for the success of an IPO.

1. Pre IPO is preparing for going public much before the actual IPO process starts. Deciding on the departmental structure, Financial information in the prospectus, working on the Management details, Corporate governance policies to be placed properly, Technical, Operational and Financial reporting systems to be put in place first, Risk and monitoring i.e control compliance policies to be formulated, selecting the IPO market which be the best for the start up company given the nature of the industry.

2. IPO: After putting the IPO structure in place effectively and synchronised symphony is to lead the start up to IPO i.e going public and being public.

3. Post IPO: Build an organisation that meets the expectations of the public.