INITIAL PUBLIC OFFER(IPO)

INITIAL PUBLIC OFFER

Listing a company on a stock exchange begins with an initial public offering.Prior to that,a company might need venture capital for growth,particularly if it is a relatviely high-risk venture.IPOs are usually governed by a number of disclosure norms.The company issues a prospectus that gives enough details to potential investors,without disclosing sensitive information that might help rivals.The company also needs to conform to the statutory norms of due diilgence.The company has choices in distribution and offering methods of IPO.

Underwriters
Normally when a public flotation of securities is made,investment bankers become involved in either underwriting the issue of acting as sales agent.They hired on fees basis.Sometimes large companies also hired a group of underwriters as per their requirements.

As an underwriter

As an underwriter,the investment banker or broker are completely responsible to underwrite the shares.It is called underwriting because they guarantee to the company issuing the shares that the money will be raised,if they will not able to sale them then they will buy that shares.So company will be in safe session.

As an sales agent

Sometimes investment banker or broker play the role of sales agent in which they buy all shares of company and sell them at higher profit that all goes into their pocket but its quite risky.So mostly when underwriters are sure then they take chance.

The investment bank conduct a due diligence investigation into the company to verify all statements and discover any subjects that may be relevant to potential investors.They try to understand the company business thoroughly,since it is also taking on some risk.

Fees and expenses

As we know while issuing initial public offer the company involves a number of procedures and processes which also include investment bank or broker fees.Such fees can range between 3% to 7% of the money raised.It also include some paper work expenses.