Initial Public Offerings 101

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

IPOs offer companies a unique opportunity to access large amounts of capital quickly and efficiently, allowing them to take advantage of new opportunities and expand their operations. For investors, buying into an IPO is an attractive prospect as it offers them the potential to earn a significant return on their investment. And for companies, going public can provide prestige and credibility which can be invaluable when seeking further investment.

The Genie AI team understand why IPOs are so important for our clients’ financial strategies. Our open source legal template library contains millions of data points that show what a market-standard initial public offering looks like – so anyone can draft their documents without consulting a lawyer. And with our step-by-step guidance and free templates available today, the Genie AI community makes IPOs easier than ever before.

As well as raising capital, IPOs may also be used to reward employees by offering them shares in the company at discount rates – further boosting morale within your organisation. Of course, this comes with its own risks; when taking a company public the announcement may affect consensus differently depending on the industry or situation – something which we always advise our clients to consider carefully before making any decisions.

At Genie AI we’re dedicated to making sure everyone has access to high quality documents when they need it most – read on below for step-by-step guidance and more information on how you can access our template library today!

Definitions (feel free to skip)

Initial Public Offering (IPO): The process of a company offering its securities (stocks, bonds, investment funds) to the public for the first time.
Fixed Price Offerings: An IPO in which the company sets a fixed price for the offering and investors can purchase shares at that price.
Book Building Offerings: An IPO in which the company and its investment bank set a range of prices for the offering and investors can place orders at various prices within the range.
Best Efforts Offerings: An IPO in which the company and its investment bank do not guarantee that the offering will be completed.
Dutch Auctions: An IPO in which the company and its investment bank set a price range for the offering, and investors can place orders at various prices within the range and the final price is determined based on the lowest price within the range that will result in the desired amount of capital being raised.
Generally Accepted Accounting Principles (GAAP): A set of standards and guidelines used to ensure that financial statements are compiled in a consistent and accurate manner.
Registration Statement: A document filed with the Securities and Exchange Commission (SEC) that includes detailed information about the company, its financials, and its business plans.
Blue Sky Laws: Laws in various states that are designed to protect investors from fraudulent securities offerings.
Exchange Listing Requirements: Requirements set by an exchange (e.g. the New York Stock Exchange) for listing a company’s stock on that exchange.
SEC Reporting Requirements: Requirements set by the Securities and Exchange Commission (SEC) for providing periodic reports and other documents.

Contents

• What is an Initial Public Offering (IPO)?
• Advantages and Disadvantages of an IPO
• Types of IPOs
• Fixed Price Offerings
• Book Building Offerings
• Best Efforts Offerings
• Dutch Auctions
• Preparing for an IPO
• Financial Statements
• Investment Banking
• Public Relations
• Legal Documentation
• Determining the Value of an IPO
• Analyzing the Market
• Assessing the Company’s Performance
• Setting the IPO Price
• The IPO Process: Step-by-Step
• Filing the Registration Statement
• Setting the Offering Price
• Allocating the IPO Shares
• Commencing Trading
• Regulatory and Legal Requirements
• SEC Requirements
• State Blue Sky Laws
• Exchange Listing Requirements
• After the IPO: Going Public
• Meeting SEC Reporting Requirements
• Adjusting to the Public Company Environment
• Potential Challenges
• Managing Shareholder Relations
• Managing Investor Expectations
• Managing the Pressure from the Market
• Potential Investment Opportunities
• Taking Advantage of the Liquidity
• Evaluating the Long-Term Investment Potential
• Assessing the Risk of Investing in an IPO

Get started

What is an Initial Public Offering (IPO)?

• Understand what an Initial Public Offering (IPO) is: a process in which a company sells stock to the public for the first time
• Learn the definition of an IPO and the associated process
• Research the different types of IPOs, including direct listings and traditional offerings
• Get familiar with the regulations, laws, and other requirements associated with an IPO
• When you have a full understanding of what an IPO is and the different types, you can check this step off your list.

Advantages and Disadvantages of an IPO

• Learn the advantages of an IPO, such as providing access to capital, creating liquidity for shareholders, and increasing the company’s visibility and credibility.
• Consider the disadvantages of an IPO, such as the high cost of going public, the loss of control, and the need for extensive regulations and reporting.
• Understand that an IPO can be successful or unsuccessful depending on the market.
• You can check this off your list when you have a good understanding of the advantages and disadvantages of an IPO.

Types of IPOs

• There are two main types of IPOs: Fixed Price Offerings (FPO) and Book Building IPOs.
• Fixed Price Offerings (FPO) involves the issuer setting a fixed price for shares before the IPO.
• Book Building IPOs involve the issuer setting the price of shares on the basis of bids received from investors.
• You’ll know that you have successfully completed this step when you understand the basics of a Fixed Price Offering and a Book Building IPO.

Fixed Price Offerings

• Fixed-price offerings are when a company sets a fixed price for the IPO and investors can place orders for a certain amount of shares at that price
• This type of offering is typically used for smaller companies, or those that have a strong reputation and investor confidence
• The company sets the price based on the current market conditions and the expected demand for the IPO
• The fixed price is typically lower than the market price after the IPO, so investors may benefit from the lower cost
• Once the IPO is complete, the company has the right to allocate the shares to the highest bidders
• You will know you have completed this step when you have a better understanding of how fixed-price offerings work and the general process involved.

Book Building Offerings

• Determine the potential range of pricing for the IPO.
• Target investors in the market to assess their appetite for the stock at the potential range of pricing.
• Finalize offer price and the allocation of shares to investors.
• Publish the prospectus in the media.
• Launch the IPO.
• Close the IPO.

You’ll know you can check this step off your list and move on to the next step when the IPO has closed.

Best Efforts Offerings

• Gather the required documents and information needed for the filing process
• Contact an underwriter to help manage the IPO and the process of selling it to the public
• Select a reputable stock exchange to list the stock
• File the necessary documents with the exchange and the Securities and Exchange Commission (SEC)
• Put together the prospectus to give potential investors the information they need to make an informed decision
• Start marketing the IPO to potential investors
• The underwriter will then work to get the shares placed with investors
• Upon completion, the stock will be available for trading and the company can begin to raise capital
• When the process is complete, you will have successfully completed a best efforts offering.

Dutch Auctions

• Understand the process of a Dutch Auction, which involves investors submitting bids for the number of shares and the price they are willing to pay
• Learn the advantages and disadvantages of a Dutch Auction compared to other types of IPO
• Research and decide whether a Dutch Auction is the right type of IPO for your business
• Contact an investment bank or a securities lawyer to help you set up a Dutch Auction
• Set up the auction, which includes announcing the opening date and time, setting a minimum/maximum limit on the number of shares and the price of the shares, and setting a duration for the auction
• Collect bids from potential investors and determine the winning bids
• Once the auction is complete, you will be able to determine the total number of shares sold and the price per share.

You will know when you can check this off your list and move on to the next step when you have completed all of the steps above, including setting up the auction, collecting bids, and determining the winning bids.

Preparing for an IPO

• Research the investment bank that is underwriting your IPO - Make sure they have the expertise to manage your offering and the resources to help you navigate the process.
• Obtain a legal opinion from a reputable securities lawyer on the validity of your offering
• Secure a CPA to review your financials and generate an independent opinion
• Create a timeline and set deadlines for key components of the IPO process
• Once you have completed all of the necessary steps, you will be ready to move onto the next step in the IPO process.

Financial Statements

• Obtain audited financial statements of the company that is planning to go public
• Have an independent CPA firm audit the company’s financial statements to ensure accuracy
• Ensure the financial statements are in compliance with the rules and regulations of the regulating bodies
• Once the audited financial statements are submitted to the regulating bodies, the company can move on to the next step.

Investment Banking

• Research and select an investment bank to advise and lead the IPO process
• Negotiate underwriting terms, such as the total fees to be paid and the size of the offering
• Prepare a preliminary prospectus which outlines the company’s financials and the process
• File the prospectus with the SEC
• Secure a written agreement by the investment banks that they will take the company public
• When all of the above steps are completed and the SEC has approved the prospectus, you can move on to the next step.

Public Relations

• Research your target investors and craft a plan to reach them, including press releases, interviews, and media coverage
• Develop a strategy for how to use social media and digital marketing to reach your target investors
• Create a timeline of when to launch your PR campaign and a list of specific PR activities to complete
• Reach out to media outlets and schedule interviews and press releases
• Use analytics to track the progress of your PR campaign
• When you have successfully completed the PR activities according to your timeline, you can move on to the next step of the IPO process, legal documentation.

Legal Documentation

• Consult a securities lawyer to understand the legal requirements for an IPO
• Determine the type of security you will be offering and the applicable regulations
• Prepare a registration statement and prospectus that complies with SEC rules
• File the registration statement with the SEC
• When the SEC approves the registration statement, you can start the process of selling the security to the public
• You will know you have completed this step when the SEC has approved your registration statement for the IPO.

Determining the Value of an IPO

• Research the company’s history of financial performance, current assets, and liabilities
• Analyze the demand for the company’s stock and the expected return the investors should receive
• Evaluate the company’s competitive position and its potential for long-term growth
• Utilize resources such as financial statements, market analysis, and industry trends to make an informed assessment of the company’s value
• When you have the value of the company and potential investor return, you can move on to analyzing the market.

Analyzing the Market

• Research the current market environment in terms of potential investors and types of investors interested in the IPO
• Analyze market trends and past IPOs to determine a realistic expectation of performance
• Examine the market’s performance in the past few months and the potential of the company’s sector
• Estimate the demand of the company’s shares in the market
• Evaluate the company’s competitive position in the context of the market

You will know you can check this off your list and move on to the next step when you have a clear understanding of the current market environment, market trends and past IPOs, the market’s performance, and the potential demand for the company’s shares in the market, as well as a thorough assessment of the company’s competitive position.

Assessing the Company’s Performance

• Review company financials from the past three to five years
• Research current and future market conditions
• Evaluate the company’s ability to grow and remain competitive
• Analyze the company’s current asset and debt levels
• Assess the company’s customer base and brand strength
• Determine the company’s short-term and long-term goals

You can check this step off the list when you have a comprehensive overview of the company’s performance and growth potential.

Setting the IPO Price

• Determine the price of the IPO by consulting with financial advisors
• Research the current market conditions and the company’s performance to determine the best price
• Consider the demand for the stock, the company’s size, and the company’s performance
• Adjust the price as needed to ensure it is competitive
• When the price is finalized, the company can move on to the next step of the IPO process
• You will know this step is complete when the IPO price is set and agreed upon

The IPO Process: Step-by-Step

• Submit an initial registration statement to the Securities and Exchange Commission (SEC) outlining the details of the offering
• The SEC will review the statement and provide feedback and comments
• After making the necessary changes, the registration statement must be approved by the SEC
• Once approved, the company can officially begin the IPO process

You’ll know when you can check this off your list and move on to the next step when you have received approval from the SEC for the registration statement.

Filing the Registration Statement

• A registration statement must be filed with the SEC and the body of the registration statement should define all relevant financial and legal information about the company
• The registration statement should include information such as the company’s financial statements, the business plan, and any other material facts about the company
• After the registration statement has been filed, the SEC will then review the document and provide comments about any issues or discrepancies it has with the registration statement
• Once the SEC approves the registration statement, the company will then be able to move forward with the next step of the IPO process
• You will know you can move on to the next step when the SEC has approved the registration statement and provided no additional comments or requests for information.

Setting the Offering Price

• The underwriters will provide guidance on the pricing of the initial public offering.
• The company and its underwriters will review market data and investor feedback to set the offering price.
• The company will set the offering price to be at or above the price the underwriters estimate the stock will open at.
• The company will be able to set the offering price once they have received all of the necessary regulatory approvals.
• Once the offering price is set, the company has set the size of the offering and can move on to the next step.

Allocating the IPO Shares

• Determine the amount of shares that will be allocated in the IPO
• Allocate the shares to the investors, taking into account the terms of the offering, the interests of the company, and the investment goals of the investors
• Make sure to complete any necessary paperwork associated with the process
• Once the shares have been allocated and all paperwork has been complete, you can check this step off your list and move on to the next step.

Commencing Trading

• Notify your broker or investment bank that the IPO is ready to commence trading and provide the relevant details
• Ensure the trading platform is ready to handle the increased trading volume
• Monitor the market to ensure the shares are trading at their expected price
• You will know that this step is complete when the IPO shares commence trading on the relevant exchange.

Regulatory and Legal Requirements

• Become familiar with the Securities Act of 1933 and the Securities Exchange Act of 1934
• Understand the role of the SEC in the IPO process
• Become familiar with the different classifications of stocks
• Understand the different types of public offerings
• Understand the legal implications of an IPO
• Obtain legal advice when preparing for an IPO

You will know you have completed this step when you have a good understanding of the different regulations and legal requirements that must be met when preparing for an IPO.

SEC Requirements

• Determine whether the company whose stock is being offered has a history of filing reports with the SEC
• Research the company and its management to ensure they have a good track record
• Ensure that all documents required by the SEC are filed and approved
• Understand the rules around advertising the IPO
• Make sure the company has the necessary disclosures in place
• Make sure the offering price is fair and reasonable

Once the SEC requirements have been met, the company can move on to the next step: understanding and complying with state blue sky laws.

State Blue Sky Laws

• Research the state laws that apply to your company and the securities you plan to offer.
• Make sure your securities comply with the laws in each state where you plan to offer them.
• Check with each state’s securities regulator to find out the fees you’ll need to pay.
• Submit all relevant forms and documents to the state regulators, along with any applicable fees.
• Once you’ve satisfied the requirements of the state laws, you can check off this step and move on to the next step.

Exchange Listing Requirements

• Determine the exchange you want to list your IPO on.
• Gather the requirements for listing on that exchange.
• Make sure all your paperwork is in order and that you meet the requirements.
• Once you’ve met the requirements, the exchange will list your IPO.
• You can check this step off your list when your IPO has been listed on the exchange.

After the IPO: Going Public

• File Form 8-A and Form 10-Q with the SEC.
• Obtain an independent auditor to review a company’s financial statements and issue an audit opinion.
• Appoint a board of directors.
• Comply with all applicable regulations and listing requirements for the exchange.
• Have the company’s shares listed on the exchange.
• Notify shareholders and the public of the company’s initial public offering.

You can check this off your list when the Form 8-A and Form 10-Q have been filed with the SEC, an independent auditor has been appointed, the board of directors is established, all applicable regulations and listing requirements for the exchange are met, the company’s shares are listed on the exchange, and shareholders and the public have been notified of the company’s initial public offering.

Meeting SEC Reporting Requirements

• Comply with the requirements of the Securities Exchange Act of 1934
• Prepare periodic reports such as Form 10-Q and Form 10-K
• Hold shareholder meetings as required by the Sarbanes-Oxley Act of 2002
• File proxy statements as needed
• Submit documents electronically to the SEC as needed

Once you have completed all of the SEC reporting requirements, you can move on to the next step of adjusting to the public company environment.

Adjusting to the Public Company Environment

• Understand the new regulations and laws you’ll need to abide by as a public company
• Take the necessary steps to comply with those regulations and laws
• Set up the necessary infrastructure to handle the influx of investors
• Develop a shareholder relations program and plan for communicating with the public
• Establish a system for private and public financial reporting
• Once you have met all the regulatory requirements, you will be able to move on to the potential challenges of being a public company.

Potential Challenges

• Anticipate and plan for the challenges associated with being a public company
• Understand how regulatory requirements and investor expectations will affect operations
• Develop a plan to manage costs, shareholder expectations, and corporate governance
• Prepare for increased media scrutiny and the associated risks
• Know how to communicate effectively with shareholders and the financial community
• Monitor stock performance to identify potential issues

When you have developed a plan to address potential challenges, you will be ready to move on to the next step.

Managing Shareholder Relations

• Respond to all shareholder inquiries in a timely manner
• Communicate regularly to shareholders about the company’s progress
• Issue regular updates about the company’s financial performance
• Establish a plan for voting on proposals
• Ensure shareholders are aware of their rights
• Educate shareholders on their rights and responsibilities
• Monitor shareholder sentiment

You can check off this step when you have implemented a plan to manage shareholder relations and established a system to respond to shareholder inquiries and monitor shareholder sentiment.

Managing Investor Expectations

• Identify key investors and their expectations from the IPO
• Set realistic expectations for investors and communicate these expectations to them clearly
• Keep investors informed throughout the IPO process
• Consider feedback from investors and incorporate suggestions where feasible
• Monitor investor sentiment and adjust messaging accordingly
• Update investors regularly on the progress of the IPO
• Respond to investor inquiries promptly

You can check off this step when you have identified key investors and their expectations, communicated expectations to them, considered feedback and incorporated suggestions, monitored investor sentiment and adjusted messaging accordingly, updated investors regularly, and responded to investor inquiries promptly.

Managing the Pressure from the Market

• Monitor the market to gauge investor sentiment in the run-up to the IPO
• Take feedback from the market into consideration when setting the IPO price
• Monitor the after-market trading of the IPO to ensure it is not undervalued
• Monitor to ensure the IPO does not become overvalued as well
• Have a plan ready to either buy back shares if it becomes undervalued or to issue a dividend if it becomes overvalued

You’ll know you have completed this step when you have a plan to manage the pressure from the market in place and are monitoring the market sentiment and the after-market trading of the IPO.

Potential Investment Opportunities

• Research and evaluate different companies to determine their potential for success
• Look for companies with solid financials and a good business strategy
• Investigate their current and projected growth to determine if it’s worth investing in
• Consider the news surrounding the company and how it could potentially impact the stock
• Once you’ve evaluated the company and determined it’s a good potential investment, you can move on to the next step.

Taking Advantage of the Liquidity

• Research the company that is making the IPO, including the company’s past financial results, management and competitive position
• Assess the liquidity of the stock and the market it trades in - look at the daily trading volume and past trading prices
• Analyze the risk associated with investing in the stock - consider all the factors that could influence the stock’s performance
• Consider the timing of the IPO - when will the IPO take place and when will the stock be available for trading?
• Determine the amount of capital you want to invest in the IPO and decide how long you plan to hold the stock
• Execute your trade on the day the stock becomes available for trading

How you’ll know when you can check this off your list and move on to the next step:
Once you have completed your research, assessed the liquidity of the stock, analyzed the risk associated with investing, determined the timing of the IPO, and executed your trade on the day of the IPO, you will be ready to move on to the next step in the guide.

Evaluating the Long-Term Investment Potential

• Research the company’s track record and future prospects
• Analyze the company’s financial statements and projections
• Consider the company’s competitive position
• Assess the company’s management team
• Understand the company’s product offering
• Evaluate the company’s industry and sector

When you have reviewed all the information and feel confident in the company’s long-term investment potential, you can move on to the next step.

Assessing the Risk of Investing in an IPO

• Research the company’s financials, including its balance sheet, income statement, and cash flow statement
• Analyze the company’s past performance and its industry
• Consider the underwriter’s reputation and track record
• Evaluate the company’s management team
• Assess the current market conditions
• Check if the IPO is underpriced
• When you have completed the above steps, you can move onto the next step.

FAQ:

Q: Is there a difference in the process and legal requirements between an SaaS company and a B2B company wanting to do an IPO?

Asked by Emma on June 9th, 2022.
A: There are several differences between SaaS companies and B2B companies when it comes to IPOs. Firstly, the amount of investment required for an IPO is usually different for each type of business. Secondly, the regulatory framework is different for each type of business, which may require additional paperwork or filing requirements. Thirdly, the type of investors that are likely to be interested in the IPO may differ depending on the type of business. Lastly, the type of financial reporting and other disclosure requirements may be different for each type of business. It is important to consider all of these factors when planning an IPO, as they can have a significant impact on the success of the offering.

Example dispute

Suing a Company for Misrepresenting an Initial Public Offering

• Plaintiff can raise a lawsuit against a company that has misrepresented the investment prospects of an initial public offering (IPO).
• The plaintiff can cite any applicable securities laws or regulations that the company has breached in the process of misrepresenting the IPO.
• The plaintiff can also cite any false or misleading statements made by the company or its representatives concerning the IPO.
• Settlement might be reached if the company agrees to provide restitution or reparations to the plaintiff for the losses suffered due to the misrepresentation.
• If damages are awarded, they can be calculated based on the amount of the plaintiff’s losses or the amount that could have been made if the plaintiff had invested in a different IPO.

Templates available (free to use)

Closing Agenda Initial Public Offering
Document List For Initial Public Offering
Timeline Responsibility Chart Initial Public Offerings
Underwriting Contract Initial Public Offering Of American Depositary Shares With Only Selling Sharesholders Foreign Privat
Underwriting Contract Initial Public Offering Of American Depositary Shares With Selling Sharesholders Foreign Private Issuer
Underwriting Contract Initial Public Offering Of American Depositary Shares Without Selling Sharesholders Foreign Private Issu
Underwriting Contract Initial Public Offering Of Common Shares With Only Selling Sharesholders Foreign Private Issuer
Underwriting Contract Initial Public Offering Of Common Shares With Only Selling Sharesholders Us Issuer
Underwriting Contract Initial Public Offering Of Common Shares With Selling Sharesholders Foreign Private Issuer
Underwriting Contract Initial Public Offering Of Common Shares With Selling Sharesholders Us Issuer
Underwriting Contract Initial Public Offering Of Common Shares Without Selling Sharesholders Foreign Private Issuer
Underwriting Contract Initial Public Offering Of Common Shares Without Selling Sharesholders Us Issuer

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