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What To Expect When You're Expecting An IPO

NasdaqInitial Public OfferingIPOSECUnicornsLyft
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Risun Udawatta   March 07, 2019

The moment we’ve all been waiting for is finally here. No, we’re not talking about the Game of Thrones trailer dropping. We’re talking about tech unicorn IPOs, with Lyft’s recent S-1 filing kicking it all off (check out our blog post on reviewing S-1s). With more companies slated to enter the public markets this year, it’ll be important to understand the IPO process, which we breakdown for you in this blog post.

Source: Crunchbase

The IPO

For startups, an IPO is not for the faint of heart. It can require years of preparation to ensure the right people and processes are in place to comply with the various securities laws and to pass muster in the public markets. IPO preparation is largely done behind the scenes — once plans for an IPO are disclosed, any backtracking may seriously impact the company’s ability to successfully list on a national exchange in the near future. Below are the major steps that companies take during the IPO process:



Stages of an IPO

Hire an Investment Bank

One of the telltale signs a company is pursuing an initial public offering is the hiring of an investment bank to lead the IPO process. Investment banks typically have years of IPO experience and also investor relationships that corporations may lack. Some investment bank responsibilities include preparation of financial statements, valuation, investor outreach, and book-running (the process of tracking information about investors interested in participating in the IPO). Hence, hiring an investment bank signals to the market that a startup is preparing to go public.

Confidential Submission of Draft Registration Form to the SEC

As discussed, an IPO can be taxing on a startup, as it requires complying with securities laws and regulations, like the Securities Act of 1933 or Sarbanes-Oxley Act of 2002. Born out of those regulations, a company is required to file a registration form, commonly known as the S-1, in order to sell securities to the public. An S-1 is an initial registration form for new securities that is required by the SEC – for more information on what is in an S-1 and what to focus on, check out our blog post. As a first step, a company will confidentially submit a draft registration form to the SEC for review and comment. Recently, unicorns like Postmates and Uber have confirmed confidential S-1 filings with the SEC.

Publicly File the S-1

Once a company has gone through a couple rounds of comments from the SEC, a company will publicly file an S-1. At this point in the IPO process, a company has signaled its firm commitment to pursue an initial public offering, and barring any extreme turns in the public markets, a company will likely list on a national exchange like the NYSE or Nasdaq. It is important to note here that the first S-1 filing will exclude the number of shares and the share price that will be offered to the public. However, this public filing will disclose detailed financial information and will give public investors a look under the hood of a company for the first time.

IPO Road Show

After publicly filing the company’s S-1, the company, along with its investment bankers and lawyers, will go on a “road show.” An IPO road show is the presentation given to potential buyers. Management, bankers, and lawyers will travel the country presenting an investment deck to wealth managers, institutional investors like hedge funds, and other sophisticated buyers. It gives investment professionals direct access to management and allows them to ask key questions. Ultimately, the road show is meant to determine appetite for the security and at what price investors are willing to buy the IPO shares.

SEC Declares the S-1 Effective

Following the IPO road show, the investment bank will divvy up the total shares offered to the various investors and determine the final pricing of the shares. Subsequently, the company will complete the S-1 filing by filling in the number of shares to be offered and the price of the security. The SEC will then declare the S-1 effective, meaning the company has met all the disclosure requirements to sell shares to the public.

Trading Begins

After the SEC declares the S-1 effective, the company’s shares will officially begin trading (typically the next day) on the chosen national exchange. Trading is usually commemorated by the company ringing in the trading day on its exchange of choice. The first few days of trading are closely watched by the investor community as investors hope for an IPO pop in share price. In the event the newly-public shares trade below the IPO price, it may point to some fundamental weaknesses of the company or that the IPO was incorrectly priced. In the event the shares trade higher than the IPO price, the offering will be deemed a success, albeit having left money on the table for the company.

An understanding of the above steps will help you keep track of the process and how close certain unicorns are to their IPO. Timing and speed of the IPO process will differ for each company, and certain companies may have fewer disclosures or an easier-to-understand business model that may speed up the process. In the event of severe market turbulence, IPOs may be delayed or postponed indefinitely even up until trading day. In the end, companies control their destiny and can pull out of the IPO process at any point.

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NASDAQ, SecondMarket, EquityZen, and Private Market Secondaries

NasdaqSecondmarketPrivate MarketPre-IPOSecondary Market

Atish Davda   October 22, 2015

NASDAQ's acquisition of the balance of its NASDAQ Private Market (NPM) brand and SecondMarket is a step forward for the private market. Their further pursuit of this pre-IPO market is one of the stronger data points supporting what EquityZen has said from its inception: there is a structural shift in capital formation. We are happy to see NASDAQ shares our view that the trend is here to stay and the market's growth prospects are promising.

It is important to look at NASDAQ's focus on companies on the precipice of an IPO in context of their public market business revenue. NPM is their way to build relationships with companies and win their IPO business. That, along with a focus on institutional investors provides companies an option in the final stage of their private life.

NPM's solution has provided yet another way to solve the access problem for large institutional investors. These institutional investors now have the choice of investing via a secondaries fund, their usual group of offline brokers, and NPM. Folks that should be paying close attention are those competing for the infrequent, bespoke, large blocks.



Yet, the SecondMarket acquisition does not move the needle for the typical accredited investor. Their access to investing in later stage private companies is not improved at all. EquityZen is one of the only platforms that gets them a seat at the table to invest in mature private companies for as little as $20,000, and remains committed to democratizing access to this asset class.


EquityZen establishes relationships with private companies well before public-market exchanges will pay attention to them, thereby earning their trust. In today's world of on-demand everything, EquityZen walks through the front door of these companies, demonstrates the power of facilitating 'on-demand' secondaries. While there is a place for structured liquidity programs, it does not always make sense to require shareholders to wait for an elaborate investment banking process to be contemplated, negotiated, and finalized.

As companies grow within the private market, employees and early investors' timelines for liquidity differ from that of the company, which makes sense. It is not surprising that few companies want to tell their employees, "just wait until the next liquidity program" to buy a house or prepare for the birth of a child. For issuers who recognize the benefits of not imposing the company's timeline on its shareholders and employees, there's EquityZen. EquityZen provides the ability to share the value created by employees, with those employees, in real time.

SecondMarket has built a great institution and led the first wave of secondary trades in private companies. EquityZen remains focused on providing on-demand secondaries, further enhancing access and liquidity in the private markets. We are happy to see additional buy-in from leading a public market player like NASDAQ.

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