Any company that reaches a milestone in its growth process should start thinking about going public. If it is mature enough, and it can pass SEC regulations, a company can begin to promote the idea of being open. Here the IPO process starts to kick in and we will explore soon what it stands for.

This stage usually happens when a company reaches a valuation of around $1 billion. In the business world, this is known as the unicorn status. In this article created by our team at TMS, will explain in more detail about unicorn status, as well as the IPO process you need to go public.

What is an IPO Process?

What is an IPO Process?Image source:

In simple terms, a public company is the one that can be traded on the stock markets. What this means is that the power is out of the hands of the few investors that owned the company when it was just private. When it goes public, it is pretty much publicly owned.

Before an IPO process, a company is private. This means it has a low number of shareholders; it is limited to accredited investors or early investors only. When an IPO is done, we are referring to the process of offering shares of private corporations to the public using a new stock. What this does is allow a company to raise capital from public investors.

The switch from a private company to a public one is important for private investors because it is a chance to get their investment back. It also lets public investors join the offering. The initial IPO is where a previously unlisted company sells new or existing securities and offers them to the public.

This is a big step for a company because it allows it to grow financially. This helps the company grow and expand, and the increased transparency and share listing is also a major factor in obtaining better terms when borrowed funds are needed.

Taking A Company Public, the IPO Process

As you can imagine, the process of getting a company through its IPO takes some time. It is expensive and can pass different regulatory hurdles. Another important component is to go public and open the information to the public.

Usually, an investment banker or underwriter helps a company go through this process. So what are the steps?

Select an Investment Bank

One of the first things in the IPO process is to choose an investment bank. The role of an investment bank is to advise the company on its IPO and to offer underwriting services. An investment bank should be selected using the following criteria:

  • Reputation
  • Quality of Research
  • Industry expertise
  • Distribution
  • Relationship with the investment bank

Ongoing Due Diligence

After meetings start to happen, all the parties involved need to do a lot of due diligence for the company to make sure their registration statements are accurate. Aside from the lockup, some other tasks include:

  • Customer service calls.
  • Market Due Diligence to understand the direction.
  • Legal and IP Due Diligence, a task usually performed by lawyers when they check contracts, registrations, and other documents.

File the company prospects for an official review

File the Company prospects for an official review

Now, the company needs to complete some documents related to the Securities and Exchange Commission. In these documents, investors need to see and know all risk factors and any financial statements. As the initial public offer process is taking place, more and more people get involved.

Revisions and discussions are going to take place between the company and its bankers. The goal is to reach the final legal formal document that is completed with the SEC. This will allow the IPO process to continue.

A known document that is common in this step is the Form S-1, the formal registration statement under the Securities Act of 1993. Other “S” versions exist, and they are also connected with employee plans or real estate companies. Sometimes, this includes hundreds of pages containing redundant information. However, investors must use and understand what the company does.

The Road Show

The Road Show

The Road Show is a very important IPO process step. When SEC offers its comments, and the company’s registration statement is complete, the investment banks have finished their part; they receive the internal committee approvals things are almost done. The company is now ready to go on a roadshow.

A roadshow is a series of presentations conducted in different locations, each talking about the IPO. Usually, they take around two weeks, and the lead investment bank takes the company’s management around the country. They set different meetings with institutional investors to generate interest.

The team that goes on the roadshow is composed of members of the investment firm that are performing the IPO. Therefore, they travel and explain the opportunity; they want to generate excitement and interest. A roadshow is a very important step in the success of the IPO process.

Define the Number and Price of a Share

Define the Number and Price of a Share

This step of the IPO process can be very difficult and requires a lot of knowledge and understanding. No formula can be used to determine the right number of price of shares. The main goal is that the investment bank needs to offer a high enough price so that the issuing company can raise a satisfactory amount of money and have enough low price so that individual investors can purchase the shares.

It may sound difficult, but a good initial public offering has three steps:

  • Shares get sold to the underwriters.
  • Underwriters sell the share to institutional investors that put orders in the roadshow by selecting groups of investors.
  • Shares start to be treated on the exchange.

As this is quite a complicated process, the IPO price is going to be different from the price of the first trade that takes place on an exchange.


When the IPO process is finished, there are still many things that need to happen. One of them is price stabilization, and it happens with the price goes below the IPO price. This is a sign of a struggling IPO.

When a company goes public, it is going to vet several underwriters. They should all have expertise in valuing the company’s equity, marketing, and distribution, together with the sell-side research support.

Transition to Market Competition

This is the final step of the IPO process, and it consists of calibrating the share price. Usually, it starts 25 days after the IPO. The underwrites provide estimates related to the company’s earnings. By doing so, they help investors as they transition on relying on the public information about the company. Six months after IPO, any inside investors are free to sell their shares.

Why Do an IPO?

Why Do an IPO?

There are many reasons why companies choose to go public. The most common one is related to funds. Sometimes, certain companies just cannot raise any more funds from their private investors.

Some companies may want to gain more exposure to the public, while others want to offer better terms for individual investors. Reasons vary from company to company, but what is constant is that the reason needs to be strong enough to keep the motivation levels high using the IPO process.

IPO can be a great opportunity for a business to bring large amounts of revenue. Doing so can help them to hire more staff, or even buy other firms. There have been cases where private companies are under pressure from their original investors, and in these cases, they might insist on taking a company public to make their profit.

Some investors do know that another company can do another option to see a return if the private company is purchased. However, this option is not always available. This happens because a company can get big enough not to be bought by another. Sometimes, the bigger a company becomes, the fewer options for exit are available. Therefore, the public market is often used.

Ending thoughts on the IPO Process

In conclusion, the IPO process is quite complex, and without significant efforts, it cannot be done quickly. Companies that choose to do this have a lot of resources available and can manage the entire process without having big problems.

If you enjoyed reading this article on IPO process, you should check out this one about Steve Jobs leadership style.

We also wrote about a few related subjects like IPO lockup period, risk assessment matrix, business process modelling, business model innovation, business model vs business plan, accelerator vs incubator, startup funding stages and how to value a startup.