February 23, 2015
Rana Abdel Fattah
The IPO Process Explained in Six Steps by GrubHub Founder
We recently stumbled upon an informative blog post by GrubHub’s Founder, Mike Evans, that takes us through his experience of discovering what the IPO process is truly like. Below are some highlights taken from Mike’s post that we think are invaluable for any company thinking about or in the process of an IPO.
In basic terms, the IPO process can be thought of as a transaction that occurs during pricing and opening trade, which will be explained further below. Mike starts off by describing the IPO process as ‘very secretive’ and quite long, taking approximately nine months or longer to complete.
Here’s a brief summary of the steps that lead to an IPO:
The IPO Timeline: This timeline incorporates the following – prep work, initial conversations with investment banks, board approval to start the bake-off process, and the bake-off process.
Organizational Meeting: This occurs six months before pricing, and is considered the official start of the IPO process whereby key players discuss the fundamentals. Key players include: management, lead underwriter, company counsel, underwriter’s counsel, and auditor.
Filing the S-1 confidentially: This takes place four months before pricing and is where emerging growth companies can file the S-1 confidentially.The SEC then provides comments or suggestions on the S-1 filing to the company in private.
Publicly file the S-1: This occurs four weeks before pricing and is the announcement made globally about the company’s intention to have an IPO. Before public trading however, there’s a compulsory wait time of 21 days that allows markets to comprehend the information in the S-1. Here, the company can only be marketed (with strict rules), and this is what’s known as the roadshow. The CEO and CFO travel around from city to city during this ‘roadshow’ to educated investors about the company.
Pricing: Here, an investment bank typically purchases a set of shares from the company, at a price that was agreed upon, and then sells them to institutional investors. This process happens one night prior to the IPO, right after the market closes.
Opening Trade: This occurs on the following morning of pricing and is considered the first public trade of a stock, which is between the group that had been allocated shares during the pricing period, and the public. This period also comprises of the lock-up period, and the secondary offering. The lock-up period is where large shareholders are restricted from selling their shares, only for a predetermined amount of time following the IPO. A secondary offering is where the bankers go to the largest shareholders and offer to sell a percentage of their shares directly to buyers in a private transaction. In return though, those sellers sign a lock-up agreement for an additional six months.
We highly recommend checking out Mike Evans’s Bootstrap. Run. Succeed blog. There you will find regular posts from Mike with personal insight on what it is like being an entrepreneur, growing your business and finding success both with customers and investors.