“The reality is that there’s a friends and family round, and there are some angel investors who came in first,” says Matt Chancey, a certified financial planner ( CFP) in Tampa, Fla. Alternatively, investors in more established private companies that are going public also may want the opportunity to sell some or all of their shares Think of an IPO as the end of one stage in a company’s life-cycle and the beginning of another-many of the original investors want to sell their stakes in a new venture or a start-up. Why Do an IPO?Īn IPO may be the first time the general public can buy shares in a company, but it’s important to understand that one of the purposes of an initial public offering is to let early investors in the company cash out their investments. Once the company and its advisors have set an initial price for the IPO, the underwriter issues shares to investors and the company’s stock begins trading on a public stock exchange, like the New York Stock Exchange (NYSE) or the Nasdaq. “Each investment banking firm in the syndicate will be responsible for distributing a portion of the shares.” Johnson, Ph.D., chartered financial analyst ( CFA) and professor of finance at the Heider College of Business at Creighton University. ![]() “The underwriter puts together a syndicate of investment banking firms to ensure widespread distribution of the new IPO shares,” says Robert R. ![]() Underwriters help management prepare for an IPO, creating key documents for investors and scheduling meetings with potential investors, called roadshows. That’s why a private company that plans to go public hires an underwriter, usually an investment bank, to consult on the IPO and help it set an initial price for the offering. A private company planning an IPO needs not only to prepare itself for an exponential increase in public scrutiny, but it also has to file a ton of paperwork and financial disclosures to meet the requirements of the Securities and Exchange Commission (SEC), which oversees public companies. ![]() Going public is a challenging, time-consuming process that’s difficult for most companies to navigate alone.
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