How to Use IPOS to Raise Capital

For businesses, growth is directly dependent on their ability to raise money. The common route for most is through the initial public offering, a platform which allows them to find additional funds for expansion and promotion purposes.

Instructions

  • 1

    As owners of the business, it is important that you first discuss all options. The IPO will only be successful if it has the backing of the board of directors, and other interested parties. As they will be relinquishing some of the control, it is important that they meet and support certain ‘independent’ requirements.

    You must be able to identify the reasons for going public, keeping business interests in mind. While the IPO may provide financial leverage, it also exposes company to negativity if the process does not yield the desired outcome. Moreover, prepare to revamp the business' operational and organizational structures which offer transparency.

  • 2

    Engaging in the underwriting process will be your next task, where you will need to hire the services of a reputable bank or carry the exercise on your own. Carrying the IPO on your own can only be possible if you have some potential investors already lined up, who are willing to buy your stocks. However, most companies require the services of large brokerage firms or investment banks to carry the IPO process for them. These firms will charge hefty fees, but have the capability to distribute your shares and make the process a success. Before choosing your underwriter, it is necessary that you track their history and gauge their performance. Preferably, invite three to four banks and ask them to give presentations which are based upon their evaluation of your business.

  • 3

    Having initiated the underwriting process, your company is also subject to SEC requirements. Now talk to the investment bank on how they intend to deal with the situation. Most investment banks will agree to buy the full amount of shares from you and will take upon themselves to sell the shares to potential clients. Inform the bank about the capital you expect to raise and set a price for each share.

  • 4

    Now draft the initial prospectus with the SEC and market your offering by preparing road show slides. SEC will review your process and provide the initial feedback within the first 30 days.

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