If a company needs money, one way to avoid getting bogged down by going into debt, or further debt, is to become a Public Company or to going public offering shares of the company on the market.
These operations are called IPOs or initial public offering.
It is not exactly a very simple thing and indeed there are a lot of bureaucratic steps and tons of paperwork to fill out, however, for popular sentiment an IPO is a demonstration of business and also personal success on the part of the owner.
Let’s go through an example on how to list on the U.S. market.
Step 1- Investment Banker
Investment Bankers are an individual or group of individuals, whom we can refer to for convenience as “early investors,” who help the company informally raise initial capital. The goal is to recover as much capital as possible, with the banker doing all that follows to promote the IPO.
Step 2-documentation
A registration document with the SEC commission will then have to be drawn up.
this document will be devoted to all the details of the company’s operation, to explain in detail the company’s operations, management and its financing prior to the IPO transaction. An identity card will then have to be created for the financial authorities.
the SEC will obviously investigate to see whether there is true or false information in the document, only designed to defraud the public. The SEC must also understand whether the listing is feasible based on the financial stability of the Company, to protect investors.
If all goes well, a listing date is decided.
Step 3 – create a document for the public
the banker, after approval by the SEC, should create a document for the public with a description of the company, with its operations, current performance, and on projected future operations.
the document will be circulated into investment institutions and larger investors. This is just to begin to create interest
This does create the so-called indication of interest, to see how many stocks people are willing to buy and at what price
This is to make sure that the selling price of the stock is well calibrated when they are listed on the market, this also makes the allocation of the shares defined, that is, how many are sold
IPOs also suffer from the hype of the moment. Our company may be on the top level and be particularly fashionable, this will be reflected in its listing price. A big ask might be a problem for the average investor, and too high a price might not be a sensible purchase.
On the contrary, an IPO of a company that receives lukewarm or no feedback may also be postponed precisely because the forecast for market collection is really unsatisfactory.
IPOs, like any financial transaction, have inherent risks for the average investor. They need to be well researched and understood, especially if it makes sense to jump in at a moment of hype.