IPO stands for Initial Public offering. An IPO or an initial public offering is a public offering in which the shares of a company are sold to institutional investors and retail investors. It can be called as a transformation phase in which the private company transforms into a public company with the idea of extension and growth. It allows the companies to raise the capital from public investors to carry out their expansion and other growth related works.
Company hits the market once they receive an approval from Securities and Exchange Commission (SEC). From just the investments of founder, co-founders, venture capitalists, it gets opened to the retail public as well.
Steps Involved in an IPO:
1. Proposals submission: Proposal and valuation is submitted by the company, it includes the share price, the total amount of shared they would like to sell and the estimated time.
2. Underwriter: The company which wants to list their shares in market then picks an underwriter. They put up an agreement which would include all the terms and conditions
3. IPO Group: IPO grouping are formed comprising underwriters, lawyers, Certified public Accountants (CPAs), and SEC experts.
4. Documentation. Information regarding the company is compiled for required IPO documentation. The S-1 Registration Statement is the primary IPO filing document. It has two parts—the prospectus and the privately held filing information.1 The S-1 includes preliminary information about the expected date of the filing.2 It will be revised often throughout the pre-IPO process. The included prospectus is also revised continuously.
5. Marketing :. Marketing materials are created for pre-marketing of the new stock issuance. Underwriters and executives market the share issuance to estimate demand and establish a final offering price. Underwriters can make revisions to their financial analysis throughout the marketing process. This can include changing the IPO price or issuance date as they see fit. Companies take the necessary steps to meet specific public share offering requirements. Companies must adhere to both exchange listing requirements and SEC requirements for public companies.
6. Board & Processes. Form a director board and ensure processes for reporting auditable financial and accounting information every quarter.
7. Shares Issuance:. The company issues its shares on an IPO date. Capital from the primary issuance to shareholders is received as cash and recorded as stockholders’ equity on the balance sheet. Subsequently, the balance sheet share value becomes dependent on the company’s stockholders’ equity per share valuation comprehensively.
8. Post IPO. Some post-IPO provisions may be instituted. Underwriters may have a specified time frame to buy an additional amount of shares after the initial public offering (IPO) date.
Should i Invest in an IPO?
IPO provides you with an opportunity to grow your wealth at reasonable price. Though it can also go sideways, but proper research about the company would result in multiplication of invest by multiple folds.
1. Investing in IPO would provide you with the early profits, if you are planning to invest in a company with good growth, then the chances of the company getting listed above the standard band is high, thereby providing you with huge profits of up to 70-80% in less than 2 weeks.
2. Transparent process: The IPO process organized by the SEBI process doesn’t include any backdrops thereby making it the most transparent process.
3. Long term gains: Usually IPOs of good companies get to grow in multiple folds. Holding it for longer time would result in wealth accumulation.
4. Perks: Apart from holding the IPO allotted stocks for long term gains, we are also entitled to receive dividends in profits and voting rights.
To Sum up the whole thing, if you are young and has interest in stock market, then i would want you to start analyzing the companies, research it out with the wide availability of knowledge available on YouTube, google, do an analysis and reality check and go ahead safely.
Please feel free to comment in case of any questions.
Together!!