When a company offers stock to the public for the first time, it is called an Initial Public Offering (IPO). It is often referred to as ‘going public’, and is the first time that owners of a company open the ownership of the company up to shareholders. An IPO is a way for a company to generate large amounts of cash in a short amount of time. It is also an effective way of attracting qualified employees, due to the ability to offer employee stock ownership. Further, offering an IPO means that the company stocks will be traded in the open market – opening the door for further investors and stock demands.
What is the process for a company wishing to go public? The initial step in the journey towards an IPO is the pitch. The pitch is where banks put together their offer for handling the financial aspect of the IPO. Once the bank has been selected, the company holds a kick-off meeting to discuss the plan to release and IPO. This is where the lawyers, bankers and accountants do due diligence on the company to ensure that the statements they’ve given are accurate.
The third step is the filing of the S-1 Registration Statement. This statement gives key details about the company and its background. After the S1 statement is reviewed by the SEC, the company begins to pre-sell the company to potential investors. They pitch the company to help establish a target offering price, possible brokerage fees and more. Company management takes their offerings on the road for the next few weeks, educating potential investors about the offering. Evaluating the feedback the company received after their road the company sets the initial price. The banks will allocate specific numbers of shares for investors, and the product is ready to be offered in their Initial Public Offering.