This article is from the Investing Articles: Public Offerings: IPO and DPO series.
Basically, going public (or participating in an "initial public offering" or IPO) is the process in which a business owned by one or several individuals is converted into a business owned by many. It involves the offering of part ownership of the company to the public through the sale of debt or more commonly, equity securities (stock).
What are the Advantages and Disadvantages?
|Stronger capital base
|Short-term growth pressure
|Increases other financing prospects
|Disclosure and confidentiality
|Better situated for making acquisitions
|Costs - initial and ongoing
|Owner diversification and
|Restrictions on management
|Loss of personal benefits
|Increase company and personal prestige
What do I need to go public?
Audited financials and a good management team. The creditability and experience of your management team is the most important key in obtaining an underwriter and successfully completing a public offering. You also need a good outside team. These are your IPO consultants, accountants, attorneys, underwriters and PR specialists.
What's the Registration Process?
It requires a Registration Statement which is a carefully crafted document that is prepared by your attorneys and accountants. It requires detailed discussions on information pertaining to:
After your registration statement is prepared, it is submitted to the securities and exchange commission and various other regulatory bodies for their detailed review. When this process is completed, you and your management team will do a "road show" to present your company to the stock brokers who will then sell your stock to the public investors. Assuming they can successfully sell your issue, you'll receive your money. Then it's simple, all you have to do is make a lot more money with the proceeds so as to increase the value of your, your teams and the public investors stock.
Does my company qualify and will my offering succeed?
There are no guarantees in life or financing. In business, that's why they call it entrepreneuring. The atmosphere for making public offerings is always in flux. Talk with an underwriter, IPO consultant, accountant or attorney about the market prospects. Then ask yourself:
Many underwriters require that your company is generating sales of $10 to $20 million annually with profits of $1 million. That your product is on the "leading edge" and that you have an experienced, proven top management team and can show future growth rates of at least 25% annually for the next five years. To obtain a NASDAQ listing, you need $4 million in assets and $2 million in net worth. However, there are a lot of exceptions and smaller companies can also become publicly held.
How much does it cost?
3 -12 months (6-9 average)