Raising Money with Your IPO

If you are perceived as a hot company, raising money with you IPO is a dream. Underwriters chase you.

However, if you are like most companies, you have to put some work into it and you had better do it artfully.

Let's look at the underwriter doing all the heavy lifting for you first.

You start by studying out the positioning and advantages of your company so you can give your prospective underwriters your sales deck touting your company.

As the Vice President of Trading for a New York underwriter, one with scores of syndicate partners, I had to attend untold due diligence meetings. These always took the same form – rent a meeting room in a swanky Wall Street location, collect underwriters and brokers. The head of the underwriting department for the lead underwriter calls the meeting to order and after some words of praise, introduces the CEO, who speaks. Then comes the CFO. The lead underwriter sums it up and opens the floor for questions.

The company's presentation tells you what their strengths are. It is during the questions that the weaknesses may be revealed, and careful listening to the questions will tell you what investors want to buy and what they avoid.

We can summarize what they want and what they avoid for you but of course it is the fine points of things that make all the difference.

When doing a deal, we study out all the statement made about recent deals and underwriting of a like kind, as well as analyst and other informed opinion on IPOs and industry deals. This tells us what the markets currently favor and avoid.

Wall Street is a fad industry and the current fad is social media. In 2000, it was the Internet altogether. In 1967 it was computers. So time marches on. It helps if you are in a fad industry, but if not you will have to carefully position your company.

A consistent favorite in the IPO market is growth, or at least the expectation of it.

Naturally, after all the Internet IPOs that were startups tanked in the Internet boom and burned IPO investors, revenues are very important. Therefore, growth in revenues is very, very important.

After that, I would say that all the other characteristics that you find in hot stocks are desired.

You will want your sales deck to be written by someone familiar with what underwriters need and want in a deal. Do not let someone inexperienced write this. This is a key document! It will determine whether you get an underwriter or not and what the terms of your deal are.

After you land an underwriter, he will aid you in making a sales presentation to his syndicate partners. He should be the one to place the stock, although he may look to you for assistance. There is nothing like overwhelming demand from affiliates and friends of the company to give the underwriter a warm and cozy feeling. Alas, many companies promise this when they talk to underwriters first, but the underwriter learns to his dismay that this was a lie when the time comes for check writing.

You do not want to be the company that was caught in such a lie, or any lie. One lie colors everything else you have said and puts all your communication under suspicion. As you can imagine, business relationships as high stakes as those with an underwriter do not last long under such a cloud.

The rule is simple, do not say anything you cannot document. Then if your statements are contradicted, you can show that you were telling the truth and recover your image. Trust on Wall Street is key.

Similarly, in the securities business, withholding negative information is considered fraud. If you have a skeleton in the closet, you had better feature it, and hopefully you can spin it.

If you reveal the negative information, hopefully your underwriter is enough of a salesman he can overcome it. However, if you do not reveal the negative information, and he gets hit with it during an important sales presentation, you are going to have one angry investment banker on your hands. Govern yourself accordingly.

In the worse case scenario, you will have to do a lot of sales work yourself. This is largely a matter of publicity.

This starts long before the underwriting by building a list of affiliates and prospects and having them take an interest in investing. You keep them informed.

You may want to start beating the drum for your company by starting with trade journals and other industry forums and gradually communicating to ever expanding circles of people until, at the same time as the underwriting, you are in the mass media.

So you map out a publicity campaign building the story for your company, your industry, your technology, your experts.

The general media will generally take its cue from the business media. The business media will look to industry publications. Industry publications will look at technical journals. Thus, you start with the technical journals and build outward. You schedule this to extend over a period of many months to peak when the stock starts trading.

You will also want to consult with an IPO market expert to see what his prognosis for the IPO market is in the future so you can time your IPO to come to market at the same time as the window of opportunity opens. He will be tracking other deals that have been filed or are likely and see how you might fit in. He should be enough of a trader to sense when the market as whole will favor your deal.

Recent volatility in the market as a whole makes it rough for underwriters. They do not want to have the stock start trading when the market is taking a dive from some new bad news, as they will find themselves committing to buy the entire issue at a time when the buyers are running away. Not good for the underwriter or you. Nonetheless, you can do deals by waiting for the window of opportunity and diving in. Some trading skill is required on the part of the underwriter.

When you get to the dog and pony show, you should be drilled and re-drilled and re-drilled by your underwriter, your CFO or your investor relations persons on making the pitch and answering questions. You will want to anticipate every possible question and objection. Sometimes it is better to address these in the presentation and sometimes it is better to let them come up on questions.

From the start, you will build a due diligence file that has two parts. First, you will want to have all the information you can collect that would possibly of interest on the industry and the environment around your business. You will compile tons of information on your competitors. This will be one file that will save the underwriter time in learning your business and industry.

The second file will be all the material documents on your company, starting with the articles of incorporation, tax ID number, business licenses, and moving on to shareholders list, minutes of directors and shareholders meetings, important contracts, backgrounds on key officers and all the directors, financial statements, etc. In short this will be all of the documents you might use to build an registration statement for the SEC, and more.

When you do the registration statement, you will build a document that has two columns. Column one will be the actual text of the registration statement. Column two will be a list of the source documents used to make the statements in the column one.

Thus, column one will say, “We hold ten patents.” Column two will say “See tab 236 in the Exhibit book.”

Now you can easily prove that all of the statement in the registration statement are true. This will save you all kinds of possible grief.