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Initial Public Offer: The Path to an IPO


At some point you have probably heard that a company is going public but what exactly does that mean and what is the process like? We will answer those questions and more by looking at Unicron Inc, a privately held fintech company we have made up as an example.

An initial public offering or IPO for short is when a company first sells shares of its stocks to the public and means that the company is transitioning from private to public ownership. There are many reasons that companies go public. Some might issue an IPO to raise capital for financing business plans, capital expenditures, or grow brand awareness. Going public may also provide an opportunity for early investors or founders to exit or capitalize on their investments.

Why is Unicorn issuing an IPO?

Back to Unicorn Inc, the company’s management team has decided to go public to raise capital to fund its international expansion plans. What happens next is Unicorn will hire an investment bank also known as an Underwriter to manage the offering and identify investors.

Typically, this requires multiple banks working together to help grow demand, mitigate risk and broaden existing relationships with the issuer. This group of investment banks is also referred to as the Syndicate for the offering. The issuer and underwriter will collaborate to assign the roles each underwriter will pay in the offering. They will also discuss the preliminary evaluation of the company and the right time to bring the offering to the market.

Next, Unicorn will work with their legal counsel to draft and file a registration statement with the Securities and Exchange Commission or SEC. The statement also known as an S-1 provides details about the company such as the business model, financial information, and potential risk factors.

A roadshow to generate interest in the initial public offering

Once the SEC has no further comments, it’s time to generate interest in the IPO. Unicorn’s management team travels around the country and possibly the world to tell their story to potential investors. The roadshow is designed to generate excitement and interest in the IPO. Once the offering period comes to an end, Unicorn’s management team asks the SEC to declare the registration effective so that investors can purchase shares in the offering.

Then they’ll work with the Underwriter to evaluate the demand of the IPO and finalize the pricing terms for the offering, including the price and the number of shares. The day after the offering is priced, marks a new beginning for Unicorn Inc. It’s the first day the company will trade on a public exchange. Unicorn’s stocks begin trading on the secondary market and any investor can purchase shares of the stock.

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