The IPO Adventure, Part I

Preparing for an initial public offering is a massive undertaking. This overview, the first of a series, will help you understand the process

by Christine Comaford

Many entrepreneurs dream of going public one day. The process is cloaked in mystery, conjuring visions of meetings stretching into the night, limos whisking executives about on the road show, and the glorious day the stock becomes available to the public. Yep, those things really do happen. But there's obviously a lot more that happens too.

In this four-part series, I'll provide a look at the realities of an initial public offering. I'll start with a basic overview of an IPO, then explain how to prepare for one, public relations do's and don'ts, and life as a public company. It's an enormous topic, but my plan is to provide you with a in-depth understanding.

Timing and responsibilities Your board of directors, together with the underwriters (investment bankers), will determine the timing of an IPO. Expect a 14- to 18-week process, but bear in mind that market conditions may expand or compress this range. To have the best shot at controlling timing and minimizing market risk, be both prepared and highly flexible. Your chief executive officer and chief financial officer won't get much work done outside of the time-consuming IPO process. In addition, sales, marketing, operations, and engineering/product development executives will need to contribute to drafting the prospectus, which you can think of as the IPO marketing document (I'll expand the prospectus later).

Your company's key responsibilities are preparing and presenting due diligence information, participating in the prospectus drafting sessions, and making sure the prospectus accurately represents the company's business. The CEO and CFO will handle the majority of road show presentations, too.

Your managing underwriter (the investment bank in charge of the offering) will also assist in the due diligence and drafting of the prospectus. But its main responsibility is forming the syndicate (who the company will present to), organizing the road show and marketing meetings, and the overall marketing and selling of the company's shares.

Your company's attorneys will advise the managing underwriter throughout the process, ensuring it remains compliant with Securities & Exchange Commission regulations and getting sign-offs from all parties on the prospectus. Your attorneys will also coordinate with the stock exchange representatives, the printer, transfer agent, and banknote company, and will help negotiate the underwriting agreement.

Your company's accountants will audit company records, prepare SEC-compliant financial statements, identify any weaknesses in your company's financial reporting, and help improve them. They'll be the point-people for any accounting questions from the SEC.

The underwriters' attorneys will advise them on legal issues, assist in the drafting process, coordinate review with the Financial Industry Regulatory Authority, and check state securities laws. And this is just the tip of the iceberg. There are armies of workers involved, but these are the generals.

Choosing an underwriter The main issue here is to be sure your underwriter is committed to your offering. Here's what to ask: Is it already representing competitive offerings or offerings in the same time frame which may be a distraction? Has it had any "cratered" deals (deals that were not successfully marketed)? You'll pick at least two underwriters with expertise in your industry. And you'll want them to hold the stock after the offering. Look at the history of the underwriters. Do they often sell off their shares at the first opportunity? If so, be warned.

Responsibilities of the underwriter include creating the project timeline for the IPO process and assigning both company and underwriting staff to each task. This timeline is presented at the organizational meeting (I explain what this is below).