What Is Going Public?
Going public is the process by which a privately held company issues shares to the general public for the first time—most commonly via an initial public offering (IPO). An IPO converts privately held equity into publicly traded stock, enabling the company to raise capital from a wide pool of investors, provide liquidity for existing shareholders, and increase public visibility. The process requires significant preparation, regulatory disclosures and a team of experienced advisors.
Key Takeaways
– Going public (an IPO) makes a company’s shares available to the general public for the first time.
– It is a complex, multi-step process that requires board approval, audited and GAAP-compliant financials, legal disclosures, underwriting, marketing (roadshow), and regulatory clearance (primarily the SEC in the U.S.).
– The mandatory SEC registration (Form S-1) and prospectus are central disclosure documents, but investors should perform additional research because filings may not include every historical detail.
– Companies should assemble a cross-disciplinary IPO team (management, board, securities counsel, auditors, and investment banks) early and prepare for ongoing public-company obligations after the listing.
How Going Public Works — Overview
1. Board-level decision and planning: Management proposes the IPO strategy to the board with business rationale, objectives, and financial projections. The board evaluates readiness and approves or rejects proceeding.
2. Assemble the IPO team: Typical core advisors include securities counsel (law firm), independent auditors, and one or more investment banks (lead underwriter). Other specialists (investor relations, financial printers, tax advisors, compensation consultants) join as needed.
3. Financial review and restatement: Audited financial statements prepared in accordance with GAAP and customary public-company accounting treatments are required—often covering multiple prior years. Private-company practices that are not permitted or advisable for public reporting are corrected or restated.
4. Letter of intent / engagement with underwriter(s): The company and lead underwriter sign a letter of intent or engagement agreement laying out fees, proposed offering size and price range, allocation of responsibilities, and timetable.
5. Draft the registration statement and prospectus (Form S-1 in the U.S.): Securities counsel and accountants prepare the registration statement that includes the prospectus used to market the offering. The prospectus contains business description, risk factors, financial statements, management discussion & analysis (MD&A), use of proceeds, and more.
6. Due diligence: Underwriters, counsel and auditors conduct detailed due diligence—reviewing operations, contracts, customers, suppliers, intellectual property, litigation exposure, executive compensation, and financial controls—so disclosures are accurate and complete.
7. File preliminary prospectus (red herring) with regulators: The draft registration statement is filed with the SEC (or other national regulator). The regulator reviews and typically issues comments requiring clarifications or supplemental disclosures.
8. Syndication: The lead underwriter forms a syndicate of co-managers and selling group members to broaden distribution and share underwriting risk.
9. Roadshow: Company management and underwriters present the business to institutional investors in a roadshow. Investor feedback helps refine pricing, demand estimates and the proposed price range.
10. Finalize the prospectus and regulatory clearances: The prospectus is revised to address regulator comments. When the SEC declares the registration effective, the company may proceed to pricing and selling shares.
11. Price the offering: Typically one business day before or on the effective date, the final offer price and offering size are set based on investor demand, comparable valuations, market conditions and issuer objectives.
12. Print and distribute final prospectus: Final materials are printed and distributed to investors and the market. Shares begin trading on the chosen exchange on the IPO date.
Step-by-step Requirements and Practical Actions (Detailed)
1. Board Approval
– Practical steps: Prepare an IPO proposal and business case (strategy, capital needs, timeline, governance changes). Convene the board, discuss pros/cons and obtain formal approval/resolution to pursue an IPO.
– Governance implications: Expect increased board oversight, possible board composition changes, and new committees (audit, compensation).
2. Assemble the IPO Team
– Key members: securities counsel, audit firm, lead investment bank(s), underwriters, tax advisors, investor-relations and communications specialists, and a financial printer.
– Practical step: Interview and select advisors with IPO experience in your industry and with the chosen exchange.
3. Review and Restate Financials
– What to do: Have auditors review historical financial statements (often five years or as required) and restate any items to comply with GAAP and public-company presentation norms.
– Practical tip: Strengthen internal controls and reporting processes early—regulators, auditors and investors scrutinize financial reporting.
4. Letter of Intent With Investment Bank
– Contents: fees (underwriting discount/commission), proposed offering size, price range, allocation of responsibilities and indemnities.
– Practical tip: Negotiate terms and exclusivity periods; understand stabilization and lock-up provisions.
5. Draft Prospectus (Registration Statement)
– Components: business description, risk factors, audited financial statements, MD&A, management and director info, related-party transactions, and use of proceeds.
– Practical tip: Draft early and iteratively; create high-quality disclosures to reduce regulator comment cycles.
6. Due Diligence
– Focus areas: legal, operational, accounting, tax, IP, contracts, employment, litigation, compliance, and cybersecurity.
– Practical step: Maintain a diligence binder (electronic data room) and document responses to due-diligence queries.
7. Preliminary Prospectus (Red Herring)
– Function: Used to solicit investor interest but cannot include final offering price.
– Practical tip: Be transparent in risk disclosures—omissions or misstatements can cause regulatory delays or liability.
8. Syndication
– What happens: Lead underwriter invites co-managers to join the syndicate; this broadens distribution channels and provides market intelligence.
– Practical tip: Choose syndicate partners with complementary institutional relationships.
9. Roadshow
– Objective: Market the offering to institutional investors to build demand and inform pricing.
– Practical steps: Prepare a polished presentation, rehearse Q&A, gather investor feedback, and document indications of interest.
10. Prospectus Finalization
– Action: Incorporate SEC comments and finalize disclosures. Obtain any required state-level approvals if applicable.
– Practical tip: Coordinate with legal counsel to ensure all changes are documented and defensible.
11. Determining the Offer (Pricing and Sizing)
– Inputs: investor demand from roadshow, comparable public-company valuations, macro/market conditions, and issuer’s capital/control objectives.
– Practical tip: Evaluate trade-offs—higher price raises capital but may reduce aftermarket performance; smaller offering preserves control.
12. Print and Distribution
– Activity: Secure an experienced financial printer for timely distribution of the final prospectus and disclosure documents.
– Practical tip: Ensure digital distribution channels and transfer agents are in place for smooth settlement.
Practical Checklist for IPO Readiness (for Management)
– Have audited GAAP financial statements covering the required historical period.
– Strengthen internal controls and reporting processes (SOX readiness if applicable).
– Assemble experienced securities counsel, auditors, and underwriters.
– Prepare comprehensive disclosure materials (business, risk factors, MD&A).
– Clean up legal and contract issues (litigation, IP rights, employment contracts).
– Align executive compensation and equity plans for public-company rules.
– Develop investor relations and public communications strategy.
– Plan for post-IPO obligations: quarterly reporting (10-Q), annual reports (10-K), proxy statements, and ongoing disclosure obligations.
Timeline and Cost Considerations
– Timeline: The IPO process typically ranges from several months to over a year depending on the company’s readiness, complexity of financials, regulatory comments and market conditions.
– Cost: Costs include underwriting fees, legal and accounting fees, listing fees, printing and marketing (roadshow) expenses, and potential restatement costs. For many companies, total fees and expenses can run into the low-to-high six or seven figures; exact costs vary widely by deal size and complexity.
Advantages and Disadvantages
Advantages
– Access to public capital markets for growth, acquisitions or debt reduction.
– Liquidity for founders, employees and early investors.
– Public profile and credibility, which can aid marketing, recruiting and dealmaking.
Disadvantages / Risks
– Significant and ongoing regulatory and reporting obligations.
– Greater scrutiny from investors, analysts and media.
– Potential loss of control (shareholder voting, dilution).
– Short-term market pressures may divert management attention from long-term strategy.
– Costly and time-consuming process.
Investor Considerations
– The S-1/prospectus is the central disclosure document, but it may not contain every detail—perform additional due diligence (industry research, competitor analysis, management background checks).
– Pay attention to risk factors, related-party transactions, revenue recognition policies and any restatements in past financials.
– Be aware of lock-up periods that prevent insiders from selling immediately after the IPO, which can affect post-IPO supply and price dynamics.
Post-IPO: Immediate and Ongoing Obligations
– Quarterly and annual reporting (Forms 10-Q and 10-K in the U.S.), proxy disclosures, and compliance with exchange listing rules.
– Continuous disclosure of material events (Form 8-K in the U.S.).
– Investor relations and analyst engagement programs.
– Ongoing attention to internal controls over financial reporting and corporate governance.
Common Pitfalls and How to Avoid Them
– Underestimating preparation time: Begin financial restatement and internal control upgrades long before filing.
– Weak disclosures: Address sensitive topics candidly—regulators and investors will probe inconsistencies.
– Poor advisor selection: Recruit advisors with relevant IPO experience and chemistry with management.
– Ignoring market windows: Pricing is market-dependent—be ready to pivot if market conditions deteriorate.
Sources and Further Reading
– PricewaterhouseCoopers, “Roadmap for an IPO: A Guide To Going Public.”
– U.S. Securities and Exchange Commission, “Form S-1: Registration Statement Under the Securities Act of 1933,” filing guidance, and “Filing Review Process.”
– U.S. Securities and Exchange Commission, “Updated Investor Bulletin: Investing in an IPO.”
– U.S. Securities and Exchange Commission, “Registration Under the Securities Act of 1933.”
– Nasdaq, “Letter of Intent.”
– Financial Accounting Foundation, “GAAP and Private Companies.”
– PricewaterhouseCoopers, various pages on IPO process and timeline.
(For practical implementation, consult experienced securities counsel, auditors and underwriters to adapt these steps to your jurisdiction, industry and company circumstances.)
If you’d like, I can:
– Create a printable IPO readiness checklist tailored to your company size and industry.
– Walk through a sample timeline and budget estimate for a hypothetical mid-size technology IPO.
– Summarize key SEC disclosure items to prepare for a Form S-1 filing.