Equity financing using an Initial Public Offering (IPO) of company shares can be one of the most exciting phases in the life of a company. Excitement and the resulting infusion of capital notwithstanding, a successful IPO requires a preparation and planning process, which can be broken down into eight steps.
- Establish the amount of capital that needs to be raised. Companies make a common mistake of raising more capital than is necessary which results in a sale of shares that is higher than necessary.
- Determine a rational growth rate. The rule of thumb for a successful IPO is a minimum of 20% growth per year. A granulated presentation showing how growth rates will be achieved is an absolute necessity.
- Get a handle on the costs of the offering. The IPO process is an expensive one, and costs which amount to 20% or more of the capital raised are not unusual.
- Hire talent. A management team that is thin or unknown can put a roadblock on the road to an IPO. Hire competent people with documented achievements and solid reputations within the industry.
- Lawyer up. The securities field seems to add more rules and regulations every week. Having an attorney who has IPO experience can avoid costly pitfalls while presenting the company in the best light possible.
- Hire an investment banking firm with experience handling IPO’s in the business’ industry. Industry specific experience can smooth the IPO process and shed light on what worked and what didn’t for other industry-related IPO’s.
- Register the IPO. All IPO’s must be registered with the SEC prior to the offering.
- Hit the road. Presentations for IPO’s are referred to as “Road Shows” or “Dog and Pony Shows”. These are the presentations where potential investors will be shown the promise of the business and why they should buy shares in the IPO.
Executing a successful IPO can be complex and arduous process. Having a team of professionals like the one at Solvo Group led by Dmitrij Harder can help to navigate complexities and make sure that an IPO provides the right amount of capital, a little excitement and very few surprises.