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IPO Stocks – IPO Allotment – and Initial Public Offering Process

Updated on March 27, 2011
IPOs and Equity Offerings - Investment Strategies and Tactics for New IPO Offering
IPOs and Equity Offerings - Investment Strategies and Tactics for New IPO Offering

Start a Limited Company

You have a $1 million and you have spotted a new technology you feel if you invest in it, you will make a killing out of it. You then start a limited company to do business in the new technology. You can have your wife as one of the director; you can have your brother as the other director. Whatever amount each will raise in terms of funds and guarantees will form the basis of the shares each will own.

Incorporate a Company

When you incorporate a company, the articles of incorporation demands you state how many shares are authorized and can be issued in your company. You start the limited company (in UK) or corporation (in US) with 2,000,000 shares where, say, you have contributed a $1 million, your brother has contributed $750,000 and you wife has contributed $250,000. Total paid up cash in setting up the business is $2 million, you own 50% (1,000,000 shares) of the shares, your brother owns 37.5% (750,000 shares) of the shares and your wife owns 12.5% (250,000 shares) of the shares. So, you see this is kind of a business owned by one family who has decided to put all their eggs in one basket.

Accelerated Growth Rate

Three years down the line, the new company has been showing accelerated growth rate of 50% per year. But technology is changing very fast and you, as a wise man who sees very far into the future will start getting illusions wondering what the future hold for the current technology that has sustained your company in business so far. A lonely voice keeps on speaking to you at the wee hours of the night telling you its time to throw your family eggs that are in one basket to the dogs. This voice is there because you can not see any future for your family business. Currently, the market is pricing your initial $2,000,000 company at say $10,000,000. The question is: if you sell 50% of the shares to the public, you would get your original $2 million back and a cool profit of $3 million plus 50% of shares will still be held by your family giving it some control of the company. Yes, this is the time to leave and you should leave very fast. You will notice that if you manage to sell 50% of the total shares, then your family will be out of danger in regard to this investment and everything else to do with that company will just be a financial beauty where the general public are the ones carrying the risk – if they gain, you also gain with your remaining 50% shares but if they lose, you don’t.

Your Company Is A Winner, Why Sell It?

Your company is a winner, why would you want to do initial public offering of stocks? You have to look for a good reason to convince the public why - perhaps telling them that God has spoken to you saying that its only good every member of the public should be entitled to a piece of cake in your well performing company.

IPO - Initial Public Offering of Stocks

Selling IPO - initial public offering of stocks means you loss absolute control of your company. All of a sudden you become accountable to strangers calling themselves outside investors, all wanting to see huge profits from their investment in what used to be your family business. They the public will criticize you and at the same time shouting-shouting asking for their rights in a manner suggesting they think that company was initially started by their mothers. IPO Allotment - initial public offering of company’s stocks means some high earning executives in Wall Street will automatically have control over you and can decide at the stroke of a pen to put your company out of business as well as to put you in jail. IPO Allotment - initial public offering of company’s stocks means your company will have to have a board of directors who may one day decide you do not deserve to be the executive director of your company that you sacrificed to setup. IPO Allotment - initial public offering of company’s stocks means the Securities and Exchange Commission (SEC) will require you to meet a stringent requirement which in itself is a lot of work with huge financial implications. All these people are now having control in your business and they are not your relatives and neither do they have any blood linkage with your family. They have come together to harvest where they have not sown and gathering where they have not scattered seeds.

IPO Allotment

At the back of your mind you know that IPO allotment - initial public offering of your company’s stocks is your strategy to raising large sums of capital, that IPO allotment will give you huge personal wealth from the fact that stock in a public traded company have a tendency of trading at a much higher value than shares in a privately held company. You also do know that going IPO will automatically gives your company the much sought after market-driven valuation which you can use for acquisitions and mergers. But the main fear that is driving all these ideas is for you to get back you initial principal investment, take profits earned off the gambling table whilst at the same time spreading the risk to the public.

Set $200,000 Aside

You now have to set some funding aside – perhaps as much as $200,000, to have the IPO rolled to the public. The $200,000 will be the initial fees that will go to your lawyer, accountant, investment bank, and other professionals that will help you in the process of delivering the IPO baby to the public.

IPO Professionals

The following will need to be carefully crafted by these IPO professionals:

1. Business Plan – a fully detailed business plan that discloses company’s debts, and all other factors that are critical in the success of that business.

2. Financial Reports – Prepared by accredited accounting firm.

3. Corporate Profile – a description of the company's finances, company’s business, background of principals, etc. The corporate profile has to be well prepared to attract the interest of potential underwriters.

4. Management Team – a comprehensive report showing experiences, training and capability of the people the company has that will drive the projected goals of the company.

5. Economist – the economist will critically analyze the viability of the business. Things such as rate of growth, net profit, financial and market analysis will have to be well thought of and well presented. 

6. Underwriters – Get good underwriters who are usually an investment banker who will prepare the prospectus, do filings, solicit for the investors as well as determine the IPO offering price, and sell the IPO.

Looking For IPO - Initial Public Offering of Stocks

That’s it. Next time you go looking for an IPO - initial public offering of stocks, you will need to ask yourself whether you are the hunter or the hunted. Chances are very high you are the hunted because 3 out of every 4 IPO offerings do not succeed. On the other hand, if you pick on the right IPO, then you will instantly make a financial killing and your life will never be the same again. At one time, Microsoft was selling at cents to a dollar and those who bought sufficient IPO shares of Microsoft are today the world’s richest men and women. If you want to succeed in IPO investment, get yourself a book on Investment Strategies and Tactics for New IPO Offerings from the trusted Amazon store. Below is a listing of such books which you can buy online from here. Good investing in IPOs.

This article should not form basis for your thesis but it’s rather meant for entertainment purpose only.

Buy Books on Investment Strategies and Tactics for New IPO Offering Online Here
Buy Books on Investment Strategies and Tactics for New IPO Offering Online Here

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    • profile image

      jone 7 years ago

      Great job

      Thank You

    • Hello, hello, profile image

      Hello, hello, 8 years ago from London, UK

      Very informative hub. Thank you,

    • msorensson profile image

      msorensson 8 years ago

      Great hub, thanks.

      You covered almost everything..Thank you.

      The figure you gave..the cost in California is actually a bit higher than 200K.