beestuChar The company you work for has a number of projects that require substantial investment over the next three years. The company is currently privately held by a small number of investors. The group can no longer be counted on to supply the foreseen equity needs over the next three years. They asked you the financial manger to look into raising the new equity financing needed by going public. Currently the financial market place that has moderate interest rates and stock prices that appear high to the underlying cash flows being generate. You need to first explain briefly the process that the company will have to go through to achieve raising the money through an IPO. It appears from this article and that this year that this may be the year to invest in an IPO. Why is that so and would it bring you to invest in an IPO? Article Links: http://www.cnbc.com/2017/05/12/snaps-dismal-dip-since-ipo-isnt-slowing-good-and-bad-tech-ipo-market.html http://www.investopedia.com/university/ipo/ipo2.asp The IPO market is back, and CNBC Disruptors are poised to take advantage Snap's poor performance isn't slowing deal flow: 2017 is on track for the first annual increase in IPOs in four years. In the first quarter of the year, there were 24 U.S. IPOs, triple the number in the year-ago quarter. The IPO pipeline includes 33 new registrants in the first quarter, up from 26 in the year-earlier quarter. The Renaissance IPO ETF (IPO) that tracks recent IPOs is up 18 percent year-to-date but driven by a surprising name: Shopify. "We're in the best of all IPO markets. If you're not moving forward, you need to have your head examined." That's the assessment of Renaissance Capital's Kathleen Smith, who keeps close track of the IPO pipeline and says several 2016 CNBC Disruptor 50 companies could go public by the end of the year. And the companies on CNBC's Disruptor 50 list are bigger and more mature than ever. Seven have been named to the list for four straight years: Airbnb, Dropbox, Palantir, Pinterest, SpaceX, Spotify and Uber. Combined they're worth more than $120 billion; Uber has the highest valuation, at $68 billion, according to PitchBook. It's already been a record year for Disruptor 50 IPOs. Four of the 2016 class have gone public since the list came out last year, the most since CNBC started the list in 2013. Three Snap, Okta and Cloudera have happened since March 1. The Snap IPO was the biggest tech deal since Facebook. Many say the other Twilio opened the window for a new wave of venture-backed companies to IPO. But only Cloudera remains substantially higher than its opening-day price. The overall surge of IPOs is expected to continue, putting 2017 on track for the first annual increase in IPOs in four years. In the first quarter of the year, there were 24 U.S. IPOs, triple the number in the year-ago quarter. And there's already a robust pipeline; 33 new registrants in the quarter, up from 26 in the year-earlier quarter. These IPOs aren't just drawn to the record market; some of them are also being pushed by VCs pulling back and the risk of "down rounds" investors lowering private-company valuations. Who's next? Kathleen Smith thinks Dropbox and Spotify have the best chance of going public by the end of the year. Dropbox has reportedly lined up banks for a possible IPO, and CEO Drew Houston told Bloomberg in April that the company has hit certain revenue and profit milestones that further clear the way for it to go public. Spotify has said it's been exploring an unconventional plan to go public, and CNBC reported Friday morning that it is pursuing a direct listing on the NYSE for 2018, forgoing a traditional IPO. Airbnb, which is reportedly profitable, is expected to go public in 2018. And Lyft may file before its larger rival, Uber, which is facing PR headaches plus a Department of Justice investigation. Lyft also has a partnership with, and investment from, GM to help drive its next leg of growth. One problem for Disruptor IPOs: Performance The Renaissance IPO ETF (IPO) that tracks recent IPOs is up 18 percent year-to-date, driven in large part by Shopify, a company from the inaugural 2013 Disruptor 50 list whose stock is up more than 115 percent year-to-date and almost 250 percent over the past 12 months. But Shopify is quite an outlier; the track record of Disruptor 50 IPOs is mixed. While Snap and Twilio both had big, celebrated IPOs, their stocks have been struggling. Snap soared out of the gate before sinking on concerns about competition from Facebook and then plummeting on a disappointing first earnings report. While Twilio also rallied, nearly doubling on its first day of trading last June, the stock started to drop last fall on concerns about slowing growth. Then it plummeted after its most recent earnings report on news that it's losing a chunk of its business from Uber. Snap and Twilio's dramatic drop in earnings speak to the pressure that Disruptors are under to keep innovating, and to avoid being squashed by the companies they originally aimed to challenge. Snap is a perfect example: Its service threatened to disrupt ad giants such as Facebook, stealing their user base and ad dollars. Now investors are worried about the impact of Facebook copying its most popular features. And Etsy's suffering from a failure to keep innovating this quarter, resulting in the ousting of its CEO. Two surprise success stories this quarter came from the founder and CEO of two Disruptor 50 companies Jack Dorsey. Despite concerns that Twitter was stagnating beside its innovative social media rivals, Twitter beat expectations on both revenue and earnings and re-accelerated user growth. And Square showed its scope as a disruptor: successfully diversifying its revenue streams, with broader geographic reach, and the growth of its banking and loan service. Okta and Cloudera, which went public with far less fanfare last year, have done the best of recent IPOs Cloudera is 10 percent above its opening-day price, and Okta is flat. But neither has released their first quarterly earnings yet. http://www.cnbc.com/2017/05/12/snaps-dismal-dip-since-ipo-isnt-slowing-good-and-bad-tech-ipo-market.html IPO Basics: Don't Just Jump In By Adam Hayes, CFA Once a company has completed its IPO, its shares are tradable on public stock exchanges. Newly listed shares have their own set of risks and opportunities that must be considered before buying stock in a company that has recently gone public. It's hard enough to analyze the fundamentals and technicals of an established company. An company about to IPO is even trickier to analyze since there is virtually no historical information to draw on. Your main source of data is the red herring prospectus, so make sure you examine this document carefully. Look for the usual information, but also pay special attention to the management team and how they plan to use the funds generated from the IPO. Often, investors will look to the performance of similar companies who are already public for comparison purposes, but many times an IPO involves a company that has no good points of reference. Also, pay attention to the quality of the underwriters and the specifics of the deal. Successful IPOs are typically supported by bigger brokerages that have the ability to promote a new issue well. Be more wary of smaller investment banks because they may be willing to underwrite any company. If you look at the charts following many IPOs, you'll notice that after a few months the stock takes a steep downturn. This is often because of the expiration of the lock-up period. When a company goes public, the underwriters make company insiders such as officials and employees sign a lock-up agreement. Lock-up agreements are legally binding contracts between the underwriters and insiders of the company, prohibiting them from selling any shares of stock for a specified period of time. The period can range anywhere from three to 24 months. Ninety days is the minimum period stated under Rule 144 (SEC law) but the lock-up specified by the underwriters can last much longer. The problem is, when lockups expire, all the insiders are permitted to sell their stock. The result is a rush of people trying to sell their stock to realize their profit. This excess supply can put severe downward pressure on the stock price. While a company can only IPO once, it can issue more stock at a later date through a secondary offering, which also uses the services of investment banks. Unless the demand for a companys shares are quite high, a secondary offering may cause the price of shares to drop sharply as new supply is added to the market. It also may indicate that the company is on shaky financial ground and needs to raise more capital, but that they are unable to issue debt at a suitable cost.