How to Apply for an IPO

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An initial public offering can lead to frenzied trading in the stock market with proper planning.
An initial public offering can lead to frenzied trading in the stock market with proper planning. (Image: Photo by Patrick Beek)

A startup owner looking for new funds and higher exposure can look into an initial public offering (IPO). An IPO is the first offering of a company's shares to the public, allowing regular investors to develop a stake in a growing business. Before a startup's stock symbol pops up on trading screens throughout the world, owners need to apply for the IPO through corporate underwriters. This process requires excellent timing, thorough research and an evaluation of the IPO from an investor's point of view.

Things You'll Need

  • IPO Application
  • Prospectus

Sit down with your accountant to list debts, revenue streams and regular expenses before trading your shares on the stock market. This meeting should result in a series of financial statements that maintain transparency about your company's finances. Update these statements monthly to ensure that your prospectus and IPO information remain accurate throughout early trading.

Write a prospectus for your startup business to include with your IPO application. Your prospectus will be viewed by investors, underwriters and market observers who can make or break your company. Include financial statements, background information on principals and proposed projects to alleviate concerns by potential investors.

Generate a list of contractors, business partners and third parties to include with your IPO application. This list allows investors to determine the quality of your business connections and research partners for financial or product quality issues.

Interview representatives from IPO underwriters like Morgan Stanley to find the right investment bank for your business. Ask questions about the company's IPO experience as well as an estimated value of the company before choosing an underwriter. Your company may want to work with several underwriters to spread risk in case your IPO does not yield positive results.

Complete an IPO application through your underwriter, focusing on overall shares and price bands available during the public offering. Price bands are minimum and maximum ranges created by underwriters to establish a median share price that falls within a company's expectations. Consult with your underwriter to look at privately held shares while determining how many public shares should be made available.

Establish a lockup agreement with your IPO underwriter to keep privately held shares off the market. A startup without a lockup agreement may be undercut by family members, partners and employees who sell their shares to outside investors. Lockup agreements allow your company to prevent private shares from entering the market for up to 18 months.

Tips & Warnings

  • Work with an attorney familiar with federal securities and trading laws while applying for an IPO. Your legal counsel should be familiar with guidelines set by the Securities and Exchange Commission, the Federal Trade Commission and other agencies to help you navigate through potential problems.
  • Avoid a firm IPO date when filling out your application. After your IPO is filed through an underwriter, the date range will be published to the general public. Your company should keep the first day of trading flexible to stay out of the shadows of market troubles, other IPOs and news that can distract attention from trading.

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