IPOs - Speak The Basics (Very Good Reading) (7)

Venture capital -

Funding acquired during the pre-IPO process of raising money for companies.

Done only by accredited investors.



Know the Process

All-hands -

A company that is thinking about going public should start acting like a public company as much as two years in advance of the desired IPO.

Several steps experts recommend include preparing detailed financial results on a regular basis and developing a business plan.

Once a company decides to go public, it needs to pick its IPO team, consisting of the lead investment bank, an accountant, and a law firm.

The IPO process officially begins with what is typically called an "all-hands" meeting.

At this meeting, which usually takes place six to eight weeks before a company officially registers with the Securities and Exchange Commission,

all the members of the IPO team plan a timetable for going public and assign certain duties to each member.




Selling the deal

The most important and time-consuming task facing the IPO team is the development of the prospectus, a business document that basically serves as a brochure for the company.

Since the SEC imposes a "quiet period" on companies once they file for an IPO -- which generally lasts until 25 days after a stock starts trading -- the prospectus will have to do most of the talking and selling for the management team.

The prospectus includes all financial data for a company for the past five years, information on the management team,

and a description of a company's target market, competitors, and growth strategy.

There is a lot of other important information in the prospectus, and the underwriting team goes to great lengths to make sure it's all accurate.

We take a closer look at the prospectus in part three of this series.Once the preliminary prospectus is printed and filed with the SEC, the company has to wait as the SEC, the National Association of Securities Dealers (NASD),

and other relevant state securities organizations review the document for any omissions or problems.

If the agencies find any problems with the prospectus, the company and the underwriting team will have to make fixes with amended filings.

In the meantime, the lead underwriter must assemble a syndicate of other investment banks that will help sell the deal.

Each bank in the syndicate will get a certain number of shares in the IPO to sell to clients.

The syndicate then gathers indications of interest from clients to see what kind of initial demand there is for the deal.

Syndicates usually include investment banks that have complementary client bases, such as those based in certain regions of the country.