IPO is a buzzword among investors for decades. Initial Public Offering(IPO) is the process by which a Private company offers share allotment to the public in new stock issuance. It is done to raise capital money from public investors. In return, the investors get regular dividends on the company’s profit. It is the best route for private companies to become a big player by raising public funds. An IPO is an exit strategy for the founders and early investors.
Before IPO, the growth of the private companies depended on funds invested by the founders, family and related professionals like angel investors and venture capitalists. When a company reaches a mature stage and it is capable to abide by SEC guidelines and regulations along with the public shareholder’s responsibility, it can go for IPO. when a company reaches a private-valuation of $1 Billion, known as Unicorn status, we say it to be in its mature stage. IPO is a major step for any private company because it gives it access to public funds and capital growth. The company gets to expand globally. With increasing transference and credibility, a private company can gain better terms.
The shares of a company are priced through underwriting due diligence. After IPO, the private ownership of a company converts to public ownership. The private shareholders of the company can hold on to their shares or they can sell them in the future for a big fat sum. The public market opens several opportunities for a company to grow, and it attracts millions of investors to contribute to the company’s shareholder’s equity. The new shareholder’s equity value is subject to the number of shares the company sells and its price.
An IPO has two stages. The first is the pre-marketing phase, and the second is the Initial Public offering itself. A company going for IPO first has to advertise to underwriters by soliciting private bids. It can also make a direct public statement to advertise. Underwriters, appointed by the company, work in a group to lead various parts of the IPO process simultaneously. The underwriters play a key role in IPO and are involved in marketing, filing, documentation and issuance. After applying, one can check the IPO application status on the BSE or NSE official website.
Steps to apply for IPO
The minimum Net worth of the company should be over 3 crores in the last three years to apply for IPO application. The first thing a company does to start the IPO process is choosing the right underwriters and agreeing to under-writing terms and conditions.
- IPO teams are formed which contain SEC experts, certified public accountants, lawyers and underwriters to assist in various IPO processes simultaneously.
- The public comes to know about IPO through the DRHP document issued by the company which contains information about the Purpose for raising funds, the Balance sheet, Net proceeds of the company, Commission and discounts of the underwriter, Promoter’s expense, copy of the underwriting document, details such as name and address of the underwriters and stockholders holding over 10% share in the company.
- Experts prepare all the required documents. The S-1 Registration Statement is the key IPO filling document that has two parts: The prospectus of the company and the Private Information part. This document is strictly scrutinized during the pre-IPO process by concerned experts.
- Underwriter and marketing professionals advertise the share issuance to calculate market demand and quote a final offering price accordingly. The underwriters can change the IPO price and the IPO date during the marketing phase. The companies must adhere to the exchange listing requirement and SEC regulations.
- The Board of directors is formed, and the company prepares itself to release quarterly financial audits of the company to the shareholders.
- Now the company is ready to issue its shares on an IPO date.
Criteria for Investor to invest in IPO
- Any adult individual who is legible enough o enters a contract can invest in an IPO of a company. But there are certain norms an investor needs to fulfill. These criteria are:
- The interested investor must have a valid PAN Card issued by the income tax department of the country.
- A valid active Demat account is also mandatory for the investor to invest in an IPO company.
- A trading account is not mandatory until the investor he sells the stocks on the listing.
- It is advised to open a trading account along with a Demat account if you are planning to invest in IPO for the first time.
The process to check your IPO Application status
According to the 2012 circular of SEBI, BSE has made available the facility to check the IPO application status by the investor on the BSE official website. BSE IPO status feature allows investors to check the application status submitted to SCSB (self-certified scheduled banks) or trading members. It requires the applicant to visit the official BSE website and enter the registered name, PAN Number and application number to check the application status. After entering valid details, the system will show you the application status along with BID ID, Number of shares and share price. It is to be noted that investors can view this information only for one week after the closure of the issue.
Similarly, investors can also check their IPO application status through the NSE website. You can check NSE IPO allotment status by visiting their official website. You need to enter your registered name along with PAN Number and Application Number.
IPO is considered as the most vital moment for the company growth as it helps the company to raise funds and acquire global market/ it also helps them to form their Equity base, exposure and prestige. after becoming a public limited company can acquire and merge with other big and small companies. It also attracts thousands of investors to invest and earn dividends on their share. One must have a clear understanding before he invests in an IPO to jab the right opportunity.