3. The IPO Process

This section starts with a general overview of the various ways firms can tap into public equity markets. Then it turns to the traditional way of going public via Initial Public Offering (IPO). It presents in detail the relevant steps a privately held firm must take to convert into a publicly held corporation.

• In a traditional IPO, this process starts with the choice of investment bank that orchestrates the whole IPO process and underwrites the securities.
• Next, it is crucial to stay on top of all the regulatory and disclosure requirements and, ultimately, prepare a listing prospectus that is in compliance with the requirements of the securities regulators.
• One of the key roles of the underwriting syndicate is in the marketing, pricing, and placing of the firm's securities. We discuss how investments banks typically do this using roadshows and a price-discovery mechanism called bookbuilding. 
• We see that IPOs are typically underpriced so that investors who buy shares from the investment bank can expect to earn a return of approximately 15% on the first day of trading, on average. We inquire into the reasons why IPOs are underpriced and discuss the cost implications of that underpricing.
• We summarize the traditional IPO process using the case of Dropbox in March 2018.
• Finally, we look at an alternative pricing mechanism, namely Dutch Auctions, and discuss reasons why that mechanism is not popular, despite its apparent pricing advantages.