How to Issue Startup Stocks
Before any startup can start to issue stock, it has to be recognized by the Securities and Exchange Commission. Once the SEC has recognized the company, stock can be issued and sold to investors. This process of recognition and getting onto a stock exchange is known as underwriting. Following this guide will land you on a stock exchange.
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Instructions
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Issue Startup Stock
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Hire an investment bank that best fits your personality. A few solid investment banks are Merrill Lynch, Morgan Stanley and Goldman Sachs. Hiring an investment bank provides you with experienced people to handle all your paperwork and to help with the sale of the stock. More importantly, it lets you focus on building the fledgling company and using the money from the newly issued stock to grow the startup.
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Meet with the investment bank and determine the type of securities that you're going to be selling. In this case, you're looking to sell stock. Once you have reached this agreement, the bank will offer you one of two scenarios. The first is a firm commitment in which the bank guarantees the sale of a certain number of shares. The second, and more common commitment, is a best-efforts agreement in which the bank does the best it can to sell as many shares as possible but makes no guarantees.
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Draft the registration with the SEC. This registration is important because it includes all the information that the SEC will use to determine whether you should be allowed to go public. Information required for a SEC registration includes financial statements, management information, any legal problems, what the funds will be used for and insider holdings. The more information you provide, the better because the SEC is all about making companies transparent for investors.
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Begin building hype for the stock while the SEC is going through your registration. To do this, put together a prospectus known as a red herring. Because a release date and issue price haven't been determined, you can offer only the information that was on the registration form. You begin to court big-ticket investors by going across the country meeting with them. Your goal is to make the stock appealing so that when shares are issued, investors immediately want to buy it.
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Once the release date is known, meet with the bank to determine the cost per share. The first instinct is to price it as high as possible; however, the higher the price, the more it costs for an investor to buy and the more room for failure if it drops. Therefore, find the balance between high for profit and low for investor appeal. You and the bank are looking for a happy medium that will guarantee maximum profits.
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Watch as the stock fluctuates up and down on the release date the stocks are issued. The stocks hit the market and immediately, investors start buying, especially if you courted properly. However, because it is new, investors will buy and sell quickly to test its volatility. In the end, as money comes into the company, you'll be able to use it to fund projects and move the startup toward success.
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