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What is a proxy?

A written authorization given by a shareholder for someone else, usually the company’s management, t…

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  1. A written authorization given by a shareholder for someone else, usually thecompany’s management, to cast his/her vote at a shareholder meeting or at another time.
  2. More generally, a person who represents another person.
Learn more about this term
Usage Example
After receiving written permission, the corporation acted as a proxy for a handful of shareholders by casting a vote that aligned with company wishes.
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tod-article-icon.jpg FEATURED ARTICLE

What International Exchanges Exist For Futures?

Exchanges are markets with standardized rules, which enable buyers and sellers to meet at a common junction to deal in their commodities. Futures contracts are …

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Where Big Money is Made

Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting.

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SEC Registration

SEC Registration

For any new offering of securities, a corporation must file a registration statement with the SEC that contains the following information:

  • A description of the corporation.
  • A concise biography of the officers and directors of the corporation.
  • Financial stakes of all insiders, the directors and officers (control persons) in the corporation, and a list of anyone holding more than 10% of the corporation’s securities.
  • Complete financial statements.
  • What securities are being offered for sale, and how will the money be used.
  • Any legal proceedings that may have a material impact on the company.

The SEC will review the registration to be sure that everything is in compliance with the law, and that there is full disclosure. If it is, then the SEC will approve the registration, and allow the company to sell its securities on a specified date—the effective date. However, SEC approval is not an endorsement of the issue, but only that there has been proper disclosure.

If there is any problem with the registration, then the SEC will send a deficiency letter to remedy the problem. Generally, the underwriting manager handles the deficiency letters quickly, because deficiency letters delay the effective date. No securities can be sold or even offered for sale before the effective date.

The time between filing and the effective date is known as the cooling-off period. During this time, no reports, recommendations, or sales literature may be sent to anyone. The underwriters may, however, send a preliminary prospectus—often called a red herring, because of the red lettering on the title page—that provides potential investors with all the necessary information that an investor would need to make an intelligent decision, which includes a description of the company and its business, income statement and balance sheets, any pending events that could have an impact on the business, such as mergers or acquisitions, its competition, and the agencies that regulate it. What it does not contain, however, is the public offering price of the new securities and the effective date for the sale, since the effective date would not yet be known.

A preliminary prospectus is published to generate and gauge interest among investors in the new securities, but it cannot offer them for sale until the registration has been approved by the SEC. The indication of interest will be used by the investment bank to price the new securities.

SEC Rule 134 does permit 1 other type of publication during the cooling-off period—the tombstone ad. The tombstone ad must be clear that it is an announcement only, and not an offer to sell nor a solicitation to buy.



Getting a Ticker Symbol

Getting a Ticker Symbol

Getting a Ticker Symbol on the OTCBB, NASDAQ, AMEX or NYSE requires three things:

  • You have to have free trading stock.
  • You have to become an SEC reporting company, meaning a company that is required to file reports under the 1934 “Filing Reports” Act, as described under the Button “SEC Reporting and Compliance.”
  • You have to have the Financial Institution Regulatory Authority, called FINRA, issue you a Ticker Symbol. The SEC does not issue ticker symbols.


Picking the Players: Selection of Underwriters and Advisors

Chapter 2—Picking the Players: Selection of Underwriters and Advisors

An initial public offering requires close collaboration with the underwriters, legal counsel and auditors. Knowing the roles that the underwriters and advisors play and the right questions to ask them will help in choosing the right IPO team.

Top Questions to Ask When Selecting Underwriters

After company management, the underwriters will play the most critical role in theIPO—managing the marketing and sale of the company’s stock to public investors. An IPO typically has one but sometimes two lead underwriters. The lead underwriter or the com- pany may select one or more additional underwriters to co-manage the offering, depending on its size and complexity. The lead underwriter has primary responsibility for and control over the underwriting of the offering, including providing comment on the offering pro- spectus, running the road show, agreeing with the company on the price per share for the IPO, determining the number of shares that co-managers may sell in the IPO and control- ling the allocation of shares among purchasers in the IPO.

Peek at the Process

“Know What You Need to Know”: Factors to Consider in Underwriter Selection

Primary factors to consider when choosing the underwriter are:

•Track record. Has the underwriter led other recent, successful IPOs of companies similar in size, stage of development and industry? Has the underwriter recently begun IPO processes for companies that were not completed? Why?

•Reputation and experience. Does the underwriter enjoy a strong reputation with investors? Does its experience in the company’s industry enable the underwriter to provide special insights and quality advice and research? Does the underwriter have strong, sustained relationships with investors active in the company’s indus- try?

•Commitment to the company. Aside from reputation and experience, will the un- derwriter make the company’s offering a priority? What are the offering schedules of other, possibly larger or more valuable, offerings the underwriter is working on?

•Aftermarket support. Life as a public company only begins with the IPO. How has the stock price of other companies the underwriter has taken public per- formed in the months and quarters after the IPO? Is the underwriter willing to make a market or use its own capital after the initial offering distribution to support trading in the company’s stock? Will the underwriter continue to provide advice, introduce the company to potential investors and help interest other ana- lysts in covering the company?

•Analyst coverage. While the underwriter is not allowed to promise analyst cover- age while securing work on an IPO, does the underwriter have prominent analysts that cover the industry and similarly situated companies? How likely are those analysts to cover the company?



Peek at the Process

“Know What You Need to Know”:

Factors to Consider in Underwriter Selection (cont’d)

•Distribution strength. Can the underwriter build a strong syndicate? Does the underwriter have strong distribution capabilities with retail (individual) investors and institutional investors? How effective is its retail sales force and its institution- al sales force? Is the underwriter’s reach regional (e.g., only one coast), national or international?

The choice of underwriting firm is important, but perhaps just as important is the team that will actually work on the IPO. Getting the underwriter’s “A” team, and a team that is motivated about the particular IPO, will increase the likelihood of a smooth, orderly and professional offering and a positive reception from investors on the road show.

The underwriter will spend considerable time analyzing how to “position” the com- pany with investors to achieve a successful offering. This marketing task involves more art than science. However, the company should engage in a dialogue with potential un- derwriter candidates to gauge how well the underwriters understand the company and its industry, and the factors that investors will focus on in deciding whether to invest in the shares at the offered price. For example, discuss with a potential underwriter which companies the underwriter believes are the company’s “comparables.” The discussion will help the company understand the sophistication of the underwriter’s knowledge about the industry and the competition, as well as how keenly it grasps the unique value proposition the company offers the market. Other areas to probe with a potential underwriter include how would the company’s stock pricing compare to the “comparables,” what other recent offerings have occurred in the company’s industry group, what factors drive the pricing of stocks in the industry, and to what extent will pricing of the company’s stock depend on historical earnings, future earnings projections or revenue trends.

The company should seek a potential underwriter’s view of the company’s valuation and related offering price range for the IPO. The analytical rigor and persuasiveness of the underwriter’s response will help the company assess whether the company valuation prof- fered by the potential underwriter when pitching for the IPO work is likely to hold up dur- ing the IPO, or erode after the company becomes well engaged with the underwriter during the IPO process or worse, when the company is on its road show with potential investors. A company should also take with a grain of salt what it perceives as an overly-optimistic valuation offered by a potential underwriter, however flattering. Remember that once the company has publicly filed for the offering there may be pressure to complete the IPO, even if the company valuation slips to a more realistic level, rather than face the unfulfilled expectations and questions that can follow an abandoned IPO.


Practical Tips

“Let Me Ask You This”:

Key Questions to Ask Potential Underwriters

•How have the underwriter’s previous IPOs performed historically? How often does the underwriter price the IPO within the filing range? In general? In the industry? If not, what were the reasons?

•What other firms would the underwriter anticipate adding to the syndicate? Will the underwriter allow co-managers in the syndicate? What does the underwriter think are the advantages and disadvantages of a co-manager?

•What does the underwriter recommend as to the IPO’s timing? Is one part of the year, or one part of the business cycle, better than another? How sensitive will the offering be to a drop in the stock market from current levels? How positive does the company’s earnings trend need to be in order to make the IPO desirable? What financial statements need to be included in the IPO prospectus?

•What would the underwriter recommend for the offering’s size? What should be the minimum number of shares offered in the IPO? Will the underwriter support allowing stockholders to sell shares (so-called “secondary” shares) in the IPO?

•Will any recent hiring of key officers and their lack of track record with the com- pany affect the timing or pricing of the offering? Which officers do the underwrit- ers expect to be involved in the offering process?

•What are the underwriter’s views on whether to list on Nasdaq, NYSE or AMEX?

•What is the expected underwriting discount? Confirm that the underwriters will bear their own expenses (except for blue sky law legal fees) as part of the un- derwriting discount. Will the underwriter accept suggestions for underwriter’s counsel?

•Does the underwriter suggest marketing the offering to retail (individual) inves- tors, institutional investors or both? Institutional investors may be less likely to hold shares as long as retail customers. Retail purchasers can stabilize the

aftermarket of a stock because they tend to hold stock for longer periods of time. However, institutional investors may understand a complex company or technol- ogy more readily than retail investors.

•What is the underwriter’s view of the time commitment and cities involved in the road show? Can the underwriter accommodate management’s schedule and time demands?

•Will the underwriter be able to grow with the company after the IPO by handling financings and M&A once the company is public? If the company needs addition- al capital, would the underwriter support a follow-on offering after the IPO?

A Note About Analyst Coverage

Reforms in the early 2000s sought to address potential conflicts of interest by chang- ing the role a research analyst can play in certain investment banking activities. As a re- sult, underwriters cannot guarantee research coverage to a prospective IPO candidate. The regulations also limit a research analyst’s involvement in an IPO (for example, research analysts cannot attend road shows) and restrict the timing of when research reports can


be published in conjunction with an IPO. Despite the change in regulations, it is still im- portant to determine whether an underwriter has respected analysts with expertise in the company’s industry. If the investment bank’s research analyst in the industry has a high stature, it reflects well on the investment bank’s decision to underwrite a company’s IPO, and investors will gain confidence from the fact that the company could receive expert, sophisticated analyst coverage after the offering.

The Statistics

“Lonely at the Top”: Lead Underwriters in IPOs

Each IPO has one, and many times two, “lead” underwriters, even if ultimately a number of underwriters participate in the syndication of the offering. The company’s pri- mary contacts in the marketing effort are the lead underwriters, who provide input on the prospectus, identify and help the company resolve marketing concerns, and organize the company’s road show. In 2007, 61 firms led or co-led an IPO. However, there is a reason “bulge bracket” investment banks make that bracket bulge: the top 10 firms led the vast majority of offerings; 24 firms led or co-led only one IPO.

Lead Underwriter* Number of IPOs Percent of IPOs
Merrill Lynch 49 17.40%
Morgan Stanley 49 17.40%
Lehman Brothers 41 14.50%
Citi 40 14.20%
Credit Suisse 36 12.80%
Goldman Sachs 36 12.80%
JPMorgan 32 11.30%
UBS Investment Bank 31 11.00%
Deutsche Bank Securities 23 8.20%
Banc of America Securities 15 5.30%

Source:, © 2008 CCH, a Wolters Kluwer Company. Used by permission.

*If there is more than one lead underwriter, each will have an IPO listed


Stock Option

Definition of ‘Stock Option’

A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date.

In the U.K., it is known as a “share option”.


American options can be exercised anytime between the date of purchase and the expiration date. European options may only be redeemed at the expiration date. Most exchange-traded stock options are American.


Advantages and Disadvantages of Being Public Advantages





Going public is an attractive alternative for many companies because of the many ad- vantages it confers. These include:

•The acquisition of a large amount of cash for company growth (whether internal or through acquisitions), hiring of talent, increased marketing, greater research and development and expanded products and services;

•Access to the public capital markets after the IPO, which generally enables a com- pany to raise money more quickly with less cost and more flexibility than in the private markets;

•The ability to use the company’s stock as “currency” to acquire the stock or assets of other companies because sellers are more willing to accept stock having a liquid public trading market than illiquid private company stock in a sale transaction;

•Greatly increased liquidity for investors and employees through the creation of a liquid public market and greatly expanded pool of potential purchasers to facili- tate sales of stock;

•Expanded potential use of stock options and restricted stock to incentivize, moti- vate and compensate employees;

•Creation of potential significant wealth for founders and pre-IPO stockholders;

•Increased corporate reputation, stature, visibility and credibility with investors, customers, business partners and current and potential employees; and

•Increased market value for the company, because the illiquidity discount appli- cable to private company stock has been eliminated.


Going public is not necessarily a panacea. Becoming a public company has significant disadvantages as well, some of which include:

•Extensive public disclosure requirements applicable to publicly held companies, which invite scrutiny, may effectively reduce management flexibility and may disadvantage the company by providing valuable information to competitors, sup- pliers, customers and business partners;

•Significantly increased capital and human resource costs in executing an IPO and subsequently maintaining status as a public company;

•Pressures on management engendered by reporting quarterly and annual financial results and the short-term bias of Wall Street expectations;

•Increased risk of class-action lawsuits and personal liability for directors and of- ficers and the significant cost of obtaining director and officer liability insurance;

•Distraction of management’s attention from the business during the IPO pro- cess, and afterward during public company life when management must devote substantial effort to comply with laws and regulations, such as those relating to public company corporate governance and disclosures, and investor relations;



Post IPO

Build a finance organisation that can meet the needs of a public company
The first months of life as a public company are critical.

There is uncertainty among investors and analysts because the company is
relatively unknown. The newly established public company is also
unfamiliar with forecasting results and performance. And the
consequences of not meeting expectations can be severe. In fact, an
inability to communicate effectively with analysts and investors to manage
expectations can be damaging to shareholder value and compromise
As a result, getting the right finance organisation, with the right
capabilities to deliver quality financial reporting at the right time, is an
important factor to a successful IPO.
This is typically achieved by first  focusing on getting the monthly
financial close process to a reasonable amount of time for a public company
and then preparing the quarterly, half yearly and annual financial
information with the level of detail and accuracy that is expected of a
public company.
A good IPO plan will identify the critical aspects of the finance function
that need to be in place before starting the IPO preparation process, for
example, the CFO and controllership functions. Others, such as public
reporting, can be built up during the IPO preparation process, initially
relying on external resources, migrating to an internal public
reporting function as the IPO launch date approaches. The key is getting
the appropriate balance of resources in place at the right time without
overdoing it before the IPO is certain.



Executing a successful IPO


Once the initial ground work is complete the IPO process can begin. One way to ensure a successful performance is to establish two parallel work streams at the start of the IPO registration process – we refer to these as Going Public and Being Public.

Going public is the process of taking the company through the steps of gathering the necessary financial, marketing, and business information; being subject to detailed financial and legal due diligence; preparing the
prospectus/registration statement and clearing this with the regulators; and then marketing the business and selling the shares in the road show. This registration process ends when the offering is sold and the company, and/
or its shareholders receive the proceeds.

Being public is the process of transforming the organisation into a public company. Among the many tasks involved are upgrading, sustaining, or enhancing financial reporting capabilities, creating an investor relations
function to communicate with the “market” and investors, meeting legal and stock exchange governance, reporting, and internal controls standards and listing requirements of the selected exchange and local legislation.



AccrediIted Investor Resources

AccrediIted Investor Resources






Strategies for Going Public – IPO UNWALL DIGITAL LENDING – DEC 2013

Strategies for Going Public – IPO UNWALL DIGITAL LENDING – NOV 2013