The 8 Steps of the IPO Process

At some point in your start-up’s growth, you may wish to raise capital from public investors to trigger new growth. An initial public offering (IPO) allows you to accomplish this goal. It entails selling new shares in your company to the public. But first, your company must meet stringent requirements set forth by the Securities Exchange Commission (SEC). Here are a few of the most basic steps.

Step One: Select an IPO underwriter. You will select a reputable investment bank to underwrite the Initial Public Offering (IPO). Carefully investigate their reputation and industry expertise, as the entire process relies heavily upon choosing the right underwriter.

Step Two: Conduct due diligence. This process entails investigation into the company’s financial details, along with the potential risk factors related to the public. At this point in the process, you will also register with the SEC.

Step Three: Compile and submit IPO regulatory documentation. The underwriter will oversee this process. It involves numerous documents such as an engagement letter, a letter of intent, red herring document, and all of the documentation required by the SEC.

Step Four: Participate in IPO roadshow. This is your opportunity to generate interest in shares of your company, while also gauging demand for them. Traditionally, roadshows were held in various locations, but digital events became more common during the pandemic and might set the standard in the future.

Step Five: Establish the IPO price. At this point, your team will have gauged market conditions and demand. However, other investigations will help determine the final price. Conduct a discounted cash flow analysis, a comparable public company analysis, and/or a precedent translation (private company analysis) at this stage in the process.

Step Six: Go public on the stock exchange. At this point, the underwriter releases initial shares on the public exchange.

Step Seven: Utilize after-market stabilization tools. During a 25-day quiet period, underwriters can trade and influence pricing. Stabilization tactics such as the greenshoe option and lock-up periods can be used at this time.

Step Eight: Transition to market competition. Once the quiet period is complete, the company’s stock is subject to regular market conditions. At this point the underwriter evaluates the post-IPO valuation and earnings, and then transitions to an advisor role.

A well-organized and experienced team can often complete these steps in approximately six to nine months. We suggest you work closely with expert guidance during this time, in order to both comply with regulations and protect your company from costly mistakes. Call our office to schedule a consultation and we will help you assess your company’s readiness for the IPO process.