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The IPO Process: How A Company Goes Public

An initial public offering (IPO) is when for the first time a private company offers stock ownership to the public. IPOs are often issued by smaller, younger start-up type companies seeking capital to grow, but they can also be offered by larger privately owned companies looking to become publicly traded as a way for long-time owners to realize a return for their hard work and investment.

The Initial Public Offering Process

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Stocks Going Public

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Trading Initial Public Offerings

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Frequently Asked Questions

What is an IPO? How does it work?

An Initial Public Offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps determine what type of security to issue, the best offering price, the amount of shares to be issued and the time to bring it to market.

An IPO is also referred to as a Public Offering. When a company initiates the IPO process, a very specific set of events occurs. The chosen Underwriters facilitate all of these steps.

  • An external IPO team is formed, consisting of an Underwriter, Lawyers, Certified Public Accountants (CPAs) and Securities and Exchange Commission (SEC) experts.
  • Information regarding the company is compiled, including financial performance and expected future operations. This becomes part of the company prospectus, which is circulated for review.
  • The audited financial statements are included in the prospectus.
  • The company files its prospectus with the SEC and sets a date for the offering.

How does ClickIPO work?

ClickIPO is a mobile-based IPO and Secondary Offering order entry platform and research tool designed for Retail Investors. We make it easy for Retail Investors at any Broker-Dealer to purchase any offering. We aggregate Retail Investor orders by placing one order with the Underwriter. We then receive an allocation from the Underwriter that we re-allocate to broker dealers, and this allocation is used to fill investor orders based on their Investor Score.

The Investor Score is an internal score at ClickIPO that works like a FICO score. Holding shares for 30 days or more and participating in multiple offerings increases your investor score which can improve your allocations.

What is a Secondary or Follow-On Offering? How do they work?

A Secondary or Follow-on Offering is when an already public company registers additional shares. The shares could be newly issued by the company to raise additional capital or a sale by an existing shareholder, or both. A Marketed Secondary Offering is marketed for 3 to 5 days and then priced. In an overnight offering, or sometimes called a Spot Secondary Offering, the offering is announced and priced right after the market closes. Most Secondary Offerings are priced below the closing price of the stock to create an incentive for investors.

In a Marketed Secondary, you will have several days to place an order. In an overnight or spot offering, you will only have 60-90 minutes to place an order. If you receive any Secondary Offering shares, they will be allocated to you, and appear in your account before the market opens the next morning.

How many IPOs and Secondary Offerings are there every year?

From 2010-2015, there were on average over 400 IPO and Secondary Offerings in the USA alone every year.

Why do investors invest in IPOs?

All investors have different strategies and we do not make any investment recommendations. However, an IPO is an opportunity to make a ground floor investment at the IPO price which is attractive to investors if they like the long term prospects of the company and think the share price will rise.

Why has it been so hard for individual investors, sometimes referred to as Retail Investors, to purchase IPOs?

Investment banks that underwrite IPO’s have been eliminating their retail brokers along with their smaller customers for many years. Working with Retail Investors externally has proven to be very difficult and expensive for Investment Banks. Since there has not been a viable way, until now, to allocate shares to retail investors, most of the retail allocation for IPOs has been going to professional IPO flippers. These flippers will sell IPO shares within days or even minutes of the Offering going public, which causes downward pressure on the share price. ClickIPO has created a viable technology solution to allocate shares to retail investors that utilize a buy and hold strategy, eliminating flippers from the process.

How much stock will I receive or be allocated?

You could be allocated the entire dollar amount of your order, part of your order, or none of your order. Your allocation depends on your Investor Score, how much interest there is in a specific offering, and how much of the offering is allocated to ClickIPO.

How much do IPOs cost?

All you pay for is the share price of the IPO. There is a commission built into the share price, but it is paid by the issuer, not you, so you do not pay any additional commission.

Why do you take orders in dollars instead of shares?

We take orders in dollars because the final price of the offering is not determined until the offering is effective. Your allocation will be in shares. Regardless of the final price, you will not be allocated more shares than the total dollar amount of your order.

What if an IPO is priced above or below the price range?

As long as the final price is not 20% below or 20% above the “price range”, your “conditional offer to buy” is still valid. As an example, an offering with a price range of $18-$20 could be priced anywhere from $14.41 to $23.99 and your “conditional offer to buy” will still be valid. Keep this in mind when considering placing a “conditional offer to buy” for any IPO.

What if an IPO is priced up to 19% above the price range?

If an offering prices up to 19% above the high end of the price range, your conditional purchase order will still be valid.

What if an IPO is priced 20% or more above or below the price range?

If an offering prices 20% or more below the low end of the price range or 20% or more above the high end of the price range, your “conditional offer to buy” is no longer valid. We will send you a notice and you will have a limited amount of time, 60-90 minutes to reconfirm your order. If your order is not reconfirmed, it will be canceled. This is one reason to always look at Click IPO messages and alerts.

What is a price range and what does it mean?

The price range of an offering is usually in $2 increments ($18-$20 as an example). The Underwriters and Issuers believe the company is worth a price per share in this range. Institutional Investors place orders usually within this range, but sometimes above or below the range. Once the underwriters have enough institutional orders, they will agree on a final offering price per share with the issuer, usually within the range. Be prepared for offerings priced above or below the range, this does happen, but not very often. The price range is just a guide.