the company’s future. In order to have a successful IPO, management must be committed to the time and effort involved in meeting registration requirements, conducting analysts’ meetings, and providing ﬁnancial reports required for both the SEC and shareholders on a timely basis. It must also be prepared to upgrade the company’s system of management controls and ﬁnancial reporting to ensure compliance with full disclosure requirements and shorter ﬁnancial reporting deadlines, both of which are necessary to maintain credibility and investor conﬁdence after the IPO.
Do the beneﬁts outweigh the costs of going public?
Selling equity represents a permanent forfeiture of a portion of the returns associated with corporate growth. Also, raising equity capital in the public markets can entail substantial costs, such as the underwriting discount, plus other fees and expenses. (See the discussion on costs that appears later in this section.) However, the answer to whether the beneﬁts outweigh the cost cannot be realistically known until several years after an IPO.
Is the market right?
The demand for initial public offerings can vary dramatically, depending on overall market strength, the market’s opinion of IPOs, industry economic conditions, technological changes, and many other factors. When a bull market is booming, the market window for new corporate offerings tends to open and these new offerings enjoy bursts of popularity. In a declining market, however, the market window tends to close and IPO activity slows down and may even come to a dead stop. Although no one can accurately forecast the market’s mood, you must consider the importance of timing and be prepared to alter your company’s timetable. The usual time, from the initial meeting of all of the team members until completion of an offering, can take three (under the best circumstances) to
Hot markets accept many offerings, but you do not want to be the deal that is just one day too late. Recognizing the urgency of the registration process is critical. Even in a slower market environment, there is what is referred to as an “industry pop” or “industry ﬂurry.” Recent occurrences of this phenomenon have involved Internet companies. “Industry pops” are tricky since you may be perceived as a “me too” company and not as strong as the leader and when interest wanes, the window of opportunity closes quickly. However, “industry pops” give the public investor good current information on comparable companies in order to make valid pricing decisions.
Market conditions will also impact the valuation of your company and the eventual pricing of its stock.