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What Is the IPO Process?

A startup must go through specific steps in the IPO process. The steps, outlined by Investopedia, include:


  • The company hires an investment bank.A company goes through what is called underwriting, which is when investment bankers raise capital from investors on behalf of corporations. The investment bank acts like the middle man.


  • The company negotiates the deal with the investment bank. Issues to be negotiated include how much money a company wants to raise, what types of securities will be issued and how the deal will be structured. The structuring can either be a firm commitment, in which an underwriter guarantees how much will be raised, or a best efforts agreement, under which the underwriter sells securities but doesn't guarantee to the company how much will be raised.

  • The investment bank prepares a registration agreement.The agreement is filed with the Securities Exchange Commission. It includes financial statements, management background, any legal problems concerning the company, any legal problems faced by the company and other company information. The SEC verifies the information is correct, and then sets a date on which the stock may be offered to the public.


  • The underwriter releases an initial prospectus.This prospectus, released during the ""cooling off period"" while the SEC verifies data, builds up hype. It has most of the information about the company but not the offer price or the effective date. It's during this stage that the underwriter tries to draw in large institutional investors, while individual investors aren't sought out until later.

  • The company and underwriter negotiate the price.Factors in that decision include how successful the hype-building was and what condition the market is in as the effective date nears.

  • The investment bank sells the securities on the stock market.This is when investors collect the money.


Before you consider going public, make sure to prepare a comprehensive business plan. We offer free forms designed to help you develop your business plan.