News, Opinions — May 8, 2012 at 1:25 pm

Initial Public Offering: Taking your Company to the Next Level

Hector Franco



If you haven’t been living under a rock, you would know that the biggest financial news that rocked the world today marks day 1 of the road show of the social media networking giant Facebook Inc on its hunt for investors to buy into its Initial Public Offering (IPO).  This is probably one of the bigger companies this year that has expressed intent to go public and people could be lining up to get a share of this monolith of a company that has not even begun to fight for control of the cyberspace attention.

What is an IPO?

For people that have no idea what an IPO actually is, this is a basic definition: an IPO is the initial sale of a company’s stock to the public at large. What this means is, for the first time, a company is going to become publicly accessible and people can now get their own share of the company for the initial listed price.

This all sounds really simple, but believe me, this is a process that takes a long time to culminate. The fact that a company like Facebook is just beginning their presentation now when the murmurs of them going for an IPO months ago means that they have just completed all the necessary steps coming up to this.

Why go for an IPO?

Of course, before we get into all of the details surrounding the IPO, it would be a good idea to question why a company would even consider going thru the trouble of an IPO anyway. Well, the main purpose of any IPO is to increase capital for the company.

When a company decides to go public, it is because they need to increase their resources beyond what the members of the company can obtain on their own. Usually they do this because they want to expand their facilities and allow them to get more profit in the long run with the assets that they will be able to obtain from the sale of their stocks. This is a good solution instead of trying to get a loan from the bank – it will not be a liability and you stand to gain much more from going public than any other capital gain venture you are going to embark on.

In order to discuss better the intricacies of the IPO, we will be splitting this into three sections: Before the IPO, During the IPO and After the IPO.

Before The IPO

For a company that is going public for the first time, the thought of people being able to now scrutinize all of their assets is a scary thing: the moment that you sell your stocks, interested investors will be looking through all of your financial statements that you will file with the Securities and Exchange Commission (SEC) to see if you are a company worth spending their money on and investing into. This means that before you even begin to attract investors, you need to have your house in order.

Before anything else, though, you need to set a target amount you want to raise so that you are guided accordingly.

To begin the process, the company needs to hire a team that will handle the IPO. These are people who come from investment banks and other outside sources. They will aid the company in the preparation of the financial statements.

Then the company will need to fix every potential weak point in their financials. This means they may have to delegate jobs to other people and create new officers in order that the company looks more organized and people will not be multitasking. After that, they have to get rid of inconsistencies in their accounting records and try to get rid of sunken assets. They also have to make sure that they have a really polished set of financial statements so that people will be impressed with what you accomplished without external aid.

Then, you need to have your company valued when that is all done so that you know where you stand and at what price you can begin to offer your shares.

Once that is complete, you can now begin the IPO process.

During The IPO

During this stage, you basically have to impress potential investors. This means spending money to put on a show. You need to commit resources in order to get the money that you want – going cheap is only going to discourage investors and will be generally bad for you.

You need to show these people that your company can only go up and if that means that you have to put them in five star hotels for three days, then so be it. Remember that you need their money but they may not need your company in their portfolios.

Tell them about your future plans and what you are going to do with their money. Woo them into biting into your stock price. Do whatever you have to do.

After The IPO

So, you’ve gone through a very tiring process that has taken you years and you now may or may not have reached your target goal in terms of capital. You think that you can relax? Not for one bit. If you thought the previous steps you took were bad, this will be worse. You now actually need to show the investors that their money was not wasted on you. Do well and you will be rewarded with more investors, do poorly and you will crumble.

The whole process is a long and arduous one, but it is not without its benefits – if you want more assets and you think your company will survive the scrutiny,  by all means try your hand. As they say, who dares wins.

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