10 things to know about Initial public offering

The initial public offering is a process of offering shares of a private company to the public in a new stock issuance. Public share allows a company to raise capital/money from public investors. This process enables the private investors of the company to reap profits as most of the timeshare price tend to be sold at a premium to the private invested capital. Some of the early investors in the company get back part of their money back from the public (Usually gets 2-10 times the money invested for selling a small percentage of shares), Meanwhile, it also allows public investors to participate in the offering and become shareholders of the company.

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What IPO brings to the private limited company?
This is a giant step for a company to make a lot of money to its initial efforts made. Efforts can be investment or work done. In the initial phase of the company, a lot a moments money would have been borrowed from family members, friends, local investors, company partnership, and venture capitalist. The founder of the company will be still holding the majority of the stack. All the individual investors and companies invested will make the returns on to their invested capital. Their stacks will be sold to public investors using the process called IPO. Investors tend to take money out of the private company selling their stack.


Private company plans to go public when they want to grow quicker. Founders of the company need capital to make the big decision. Founders will be facing a lot of pressure from the investors of the company to get their money back. To avoid the liquidity issue of the company and expand the operations of the company.

For a company to go public, it should show strong fundamentals like growth rate, profitability, and its plans to the public. They have to provide plans to the public on what they are going to do with the capital gained with this IPO. Greater the fundamentals, more the money raised from the stock market. Many times 50-80% of the money goes to debt reconstruction and building new infrastructure for operations. The company should make sure that accounting(books) should be properly kept to show the credibility of the company.

Shares of the company will be valued and priced by the process called underwriting as per rules of the regulators. Since most of the company shares will be converted to public ownership, the company tends to overvalue its price to get more returns. This is will be partly avoided by the process called underwriting.

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  • Why company need underwriters
  • Underwriters will be top accounting companies licensed by regulators. The company will choose one among the underwriters based on their quality of services.
  • Underwriting is the process of accounting the books of a company to change the ownership from private to public. This will make the books ready to be visible to the public and the company will be advertising the books asking for the public to invest in the company.
  • The underwriting process tries and convert the percentage of the company to the number of shares and evaluate the price of a stock.
  • Underwriters follow due diligence going through evaluating the companies value and advertise the value.
  • Underwriting will be done by the team of CPA/CA(Certified public accountants/Certified accountants), lawyers, and regulation experts from their industry.
  • This opens public investors in millions to evaluate the company and buy the shares of the company. Stock will be sold in splits to individual and institutional investors.

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Steps followed in IPO process:
Underwriters evaluate the security and offer the proposals including the number of stock, Offer price, and time frame for the IPO release. Generally, it takes 3-12 months for IPO based on the size of the company. These are the steps followed to complete the IPO process.

  1. Underwriters make revisions of the financial analysis of the company making sure that marketing goes smooth.
  2. Analyse the demand for the stock and find the exact valuation for the company.
  3. Converting the stack of the company to shares and fixing the final offer price.
  4. Finalize the board of directors.
  5. Ensure the audit of parameters is done for quarterly reporting.
  6. Fixing the IPO date.

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